comparison of financial statements of two companies examples
Hence, the company increased its advertisement cost significantly and reduced the selling price in order to achieve higher sales volume. The GPM ratio is expressed as percentage with the help of the formula. This has provided an insight to investors about their performance for taking a decision related to investment in the best company. The NPM is generally high for high volume products. Inter-firms comparison between two companies is a different accounting policies and rules and regulation that they created like in IJM BERHAD and GAMUDA BERHAD. Find out the absolute change in the items mentioned in the income statement. Life insurance companies is a collect saving that form or annual premiums and invest in stocks, bonds, real estate and montage, finally make payments to the beneficiaries of the insured parties. This is because the sales increased during the year. All work is written to order. April 03, 2022. However, the cost of goods sold for the company increased by just Rs 15,000 in the same period. You are free to use it as an inspiration or a source for your own work. Finally, there is a considerable increase seen in the fixed assets of the company. In order to analyze the financial statements for a business, information is needed from the balance sheets. Terms and conditions, features, support, pricing, and service options subject to change without notice. They also designed to meet objective in different types of savers and they used as interest bearing checking account such as money market funds. The distribution strategy of each company 7-8 7. OBJECTIVES OF THE STUDY: The study is undertaken with the following objectives * To study the liquidity position of the company. The graph shows that Adidas have had a relatively low Stock Turnover than that of Nike Inc throughout the year The graph shows that the stock turnover of the Nike Inc has been very consistent whereas the Adidas company have had a low and declining stock turnover The higher the stock turnover it is better for the company as it shows that the stock gets sold very fast and it also implies that your product has a high demand in the market If the stock turnover is high the company is said to be more efficient in converting its stocks into sales A low stock turnover is bad for a company as it shows that the company has less sales and its product is not much in demand by the customers, A company with a high ROCE is normally a highly profitable business The return on capital employed trend line shows how the company is able to generate the profits Return on Capital Employed ratio also indicates whetherAthe companyAis earning sufficientArevenuesAand profits in order to make the best use of its capital assets In the year 2007 Adidas had a better ROCE as they had improved their business as and were able to generate more profits and have had a better ROCE that Nike Inc as Nike Inc had their ROCE decline in 2007 Adidas had a decline in ROCE in the year 2008 and Nike Inc improved their ROCE Due to the recession Adidas and Nike Inc both had a drop in the ROCE and again Adidas had a more major drop if compared to Nike Inc. These statements primarily include income statements, Thus, the purpose of preparing these statements is to ascertain the profitability and financial soundness of a business. Payroll services are offered by a third-party, Webscale Pty Ltd, the makers of KeyPay. The company could employ some of the following measures in order to improve its financial position. Let's take a debt ratio, for example . and interpretation of these statements is required using various tools and techniques. Hence, such a fact indicates that the company gave more importance to earning non-operating profits over operating one. These increased by 33% which is much higher as against the increase in net sales that was just 12%. On the other hand, another measurement base which companies may consider when structuring their financial statements is current value also known as 'fair value' main purpose is to measure the use of information that is updated to reflect the conditions at the measurement date and incorporate both positive and negative changes [Maynard, J . Example: An example of the vertical analysis of balance sheet and income statement is given below: Comparative balance sheet with vertical analysis: * Current assets: 2018: 2017: Comparative income statement with vertical analysis: * Cost of goods sold: 2018: 2017: Vertical analysis states financial statements in a comparable common-size format . *You can also browse our support articles here >. The low inventory turnover ratio implies that, during that period, the sale of the company has declined The other reason for rise in the ratio could be that the company started producing for increasing its stocks, but considering the situation at that point of time, it seems highly improbable. All else being equal, company B's financial statements would most likely show less income because of a higher cost of goods sold. This increase in the debt-to-equity ratio could indicate management's decision to increase the company's debt load to better leverage the company's assets and equity and more closely match the industry. During the free trial, you may pay any number of employees using QuickBooks Payroll free of charge. There has been a significant increase in Other Income both in absolute and relative terms. The company should come up with ways of reducing the cost of production without compromising on the quality of the vehicles it produces. the company can manage their finance, Debts management is how they manage their tax, and Market value of investment to ordinary shareholders is how they create their market value book. The limitations of financial statements are those factors that a user should be aware of before relying on them to an excessive extent. Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. But you can one from professional essay writers. It also a funds invest primarily in bonds, stocks, mortgages and real estate. Or the company could have reduced the price of elastic products and increase its turnover by luring the common man with its brand name. ROCE can help investors understand the growth forecasts as predicted by the company and it can often serve as a reliable measure of corporate performance. Orders: For testing the financial strength of the companies, I have tried to use the revenue and profit ratios. . This will show the difference of everything between both these companies. It also reveals the extent to which the assets and liabilities have changed during such periods. New York: McGraw-Hill College Publishing. The balance sheet will be the specific area of comparison. An active employee is one who has been paid at least once in the billing month. Looking for a flexible role? Up against the competition by comparing your financial ratios with industry standards. The formula t calculate the ROCE is Return on Capital Employed = * 100, I have considered net borrowings entirely as the long term debt since working capital includes short term debt, The ROCE trend line shows how the company is able to generate the profits If the capital employed falls while the net profits remain constant this shows that the company is earning the same with less amount of capital employed The company graph shows that the ROCE was improving in the years 2006-2007 Improving ROCE is always a good sign for a company but from the year2007 there is a constant decline in the trend which is observed, Adidas had started the year 2006 above Nike Inc with a GPM higher than Nike Inc Adidas in the year 2007 has improved their companys standing as there is a constant improvement in their performance The year 2008 saw a successful year for the market as a whole and the performance of both the companies was better, however the performance of Adidas was better than Nike Inc In the year 2009 the companies had a massive decline in their GPM as the world was battling recession, which affected the entire globe as a whole. This means that more effort should now be focused on cost cutting measures so that the high sales can lead to high profits in turn. The analysis has been done using secondary data. Financial ratios are often made part of inter-firm comparison - a comparison of operating performance and financial status of two or more similar commercial entities working in the same industry, primarily conducted to learn and achieve a better business performance. No plagiarism, guaranteed! Both companies are in the retail apparel industry. Their modification of the [], Executive Summary This paper discusses a strategys evaluation by showing how organizations in every sector face tough competition in the current corporate environment. I can help you save hours on your homework. A company's choice of inventory valuation method can have a significant impact on the presentation of its financial statements. Research should also be geared towards improving the quality of units produced. The Net Profit Margin Ratio is a better measure of a firms profitability since it accounts for the companys sales and expenses. In comparison, the company's total assets this year are $900,000. Hence, this technique is also termed as Horizontal Analysis. You can receive the notifications now. The GP M ratio is expressed as percentage with the help of the formula. Product registration required. For the year 2006 universal motors company had a current ratio of 36877/57362 or 0.64 while global automobiles limited had a current ratio of 32899/54434 or 0.60. The method which is applied to find out the financial comparisons between the two companies is the efficiency ratio analysis which will help us to show how the firms resources are being used and can be held as a strong measure on the firms financial performance. Together, they give youand outside people like investorsa clear picture of your company's financial position. Gross Profit Ratio increased from 25% to 28% over the period. This study confined to five years data from annual reports 2006-2010, financial statements and other records of the Auto Syndicate Private Ltd. For Advanced Payroll, there is an additional monthly subscription fee of $10 (incl GST). You are required to compute and compare the accounting ratios between these two companies, and conclude the results of your finding. Hence, lets understand: Try QuickBooks Invoicing & Accounting Software 30 Days Free Trial. So, lets understand a comparative balance sheet through an example. Leopold, B. Assets and liabilities of business for the previous year as well as the current year, Changes (increase or decrease) in such assets and liabilities over the year both in absolute and relative terms, Thus, a comparative balance sheet not only gives a picture of the assets and liabilities in different. Income Statement of M/s Singhania as of December 31, 2017, and December 31, 2018. Only in the industries in which seasonal products are utilized, higher stock turnover ratio can be acceptable, The ROCE is an efficiency ratio that measures the financial performance of a company as compared with the amount of capital invested. Sales Revenue of Nike Inc $16,325.9, Year 2008. Furthermore, it is evident that the cost of goods sold for the company improved as an outcome of increased sales volume. Daniel, L. (1997). The company should therefore look for ways of minimizing interest expense and thereby improve on its level of profit. This increase or decrease in absolute amounts are mentioned in Column III of the comparative balance sheet. Saving and loan association is a specializes in accepting savings deposits and making mortgage and other loan like collect funds from many small savers and lend out the money to house buyers and other kind of borrowers and it more significant economic function of the saving and loan association to create liquidity in capital markets. Net Profit Margin =, The trend in the above graph shows the NPM of the company Nike Inc over 5 years The following trend line shows the NPM for Nike Inc in 2006 2007 was showing signs of consistency after a particular rise from 2004 2005 and then in the year 2007 there was another rise in the net profit 2008 was not a good year for the company as the net profit fell to a great extent directly from 10.11 high to 7.75 low of the company in the time period of these 5 years The company came back strongly with recovering their status and stabilizing their net profit in the year 2010 where they came back to their Net Profit to 10.03% Some of the ways to increase the NPM are: Negotiating a cheaper rent for the premises Cutting down other indirect expenses like providing economy class tickets for travelling rather than business class. Not all features are available on the mobile apps and mobile browser. what are comparative financial statements. However, the cost of goods sold for the company increased by just Rs 15,000 in the same period. I will also give my recommendations on what the companies should do to improve on their financial performance based on my analysis. It is based on the accounting equation that states that the sum of the total liabilities and the owner . A broad comparison is drawn between the two companies based on sales turnover and other relevant ratios to get an understanding of the financial structure and its effectiveness in the business. The year 2009 was a very bad year as the world was hit by a major recession and had created a major slump in the case of many businesses. This offer cannot be combined with any other QuickBooks Online promotion or offers. QuickBooks Online and QuickBooks Payroll are accessible on mobile browsers on iOS, Android, and Blackberry mobile devices. Mutual funds collect money from savers and use to buy stocks, long-term bonds and short-term debt instruments that issued by government or business units and thus reduce risk by investment diversification, achieve economies of scale in analyzing securities, managing portfolios, buy and selling securities. Also, there has been a substantial decrease in Other Expenses both in absolute and relative terms. Using video conferencing instead of flying over to other destinations unless need be Reducing other overhead expenditure which can be cut down, say for instance, making a policy to shut down the computers, air conditioners/heaters when they are not in use, Stock Turnover ratio would measure the number of times a firm sells its stocks within a time period. Analysis of Financial Statements. 11-38 Financial statements for two companies, The Gap and Intimate Brands, are presented below. These statements are: the income statement, the balance sheet, the cash flow statement and the statement of retained earnings. Finally, calculate the percentage change in the income statement items of the current year relative to the previous year. A professional writer will make a clear, mistake-free paper for you! Page. Advanced Accounting. Stock Turnover, Graph of the GPM for Adidas (2006 2009) & Nike Inc (2006 2010), Graph of the NPM for Adidas (2006 2009) & Nike Inc (2006 2010), Graph of the Stock Turnover for Adidas (2006 2009) & Nike Inc (2006 2010), Graph of the Return on Capital Employed for Adidas (2006 2009) & Nike Inc (2006 2010), https://studydriver.com/the-financial-comparisons-between-two-companies-finance-essay/, Financial Performance of the Nokia Corporation Finance Essay, Financial Statement Analysis for Blackmore Company Finance Essay, A Financial Statement Analysis Finance Essay, The Impact of Ownership Structure on Companies Finance Essay, A Financial Evaluation of Mccain Foods Finance Essay, Investment and Financial Data on Non Financial Firms Finance Essay, Two Types of Ratio Comparisons for Etisalat Finance Essay, Financial Analysis and Decision Making at Bresil Investment Finance Essay, Using Financial Planning to Manage Financial Resources Finance Essay, Financial Resource Management MG Fabrications Plc Finance Essay, Genting Group Comprises of Five Public Companies Finance Essay, Financial Ratios for Pace Ltd with Calculations Finance Essay, Methods and Reasons for Investing in Certain Companies Finance Essay, Financial Indicators Asset Turnover Finance Essay, Analysis of Financial Reporting and Financial Statement Finance Essay, Year 2006. : the income statement of M/s Singhania as of December 31, 2018 percentage change in fixed... 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