comparison of financial statements of two companies examples

Now, there can be several reasons for accounting lower Gross Profit during the year: Firstly, a higher increase in the cost of goods sold can be on account of either increased sales volume or higher input cost. It also reveals the extent to which the assets and liabilities have changed during such periods. . Hence, this technique is also termed as Horizontal Analysis. Sales Revenue of Nike Inc $16,325.9, Year 2009. The four general purpose financial statements include: Income Statement Balance Sheet Statement of Stockholders Equity Statement of Cash Flows The other information available forth above companies is that universal motor manufacturers limited has 1000 shareholders who own a total of 10 million shares in the company. By improving on the quality, the company could also increase the price per unit of each vehicle it offers to the market thereby increasing the profit margin (Peter & Eddie, 1997). 3. Ratio analysis is a two-step process. But the detailed information reflected in such statements alone is not sufficient to reach meaningful managerial conclusions. Indirect transfer from savers to borrowers though investment banking house: Investment bank is a unwritten the issues of corporations securities as a middlemen to the facilitate the issues by purchase and then resell the same corporation so that the money paid by savers for purchase. In large organizations and companies may organize credit unions for their members and employees, respectively. Financial statements are reports prepared and issued by company management to give investors and creditors additional information about a company's performance and financial standings. But for debts equity ratio, the first company is lower than the second company because the second company has a light debts burden with smaller amount of debts and bearing low interest. For acid-test ratio, first company is also higher than the second company is because that the first company has a larger amount of liquid assets that can be used to finance its current liabilities and the company has high liquidity to finance its short-term liabilities and financially stable. The next component that a financial manager or a business owner needs to analyze is the change in thefixed assets, long-term liabilities and capital of a business. Furthermore, such a statement helps in a detailed analysis of the changes in line-wise items of the income statement. Any information contained within this essay is intended for educational purposes only. Furthermore, in terms of the administration of the two companies, it can be deduced that the management of both organizations is concerned with high profit and excellent performance. . They are often the chepast source of funds available to individual to borrowers. When investors wish to compare the financial performance of different companies, a highly valuable tool at their disposal is ratio analysis. Statement of Income - Two-Year Comparison Sales Cost of Sales Gross Profit Operating Expenses Operating Profit Other Income Other Expenses Earnings Before Interest and Taxes Interest Expense They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders' equity. Data access is subject to cellular/internet provider network availability and occasional downtime due to system and server maintenance and events beyond your control. During the year 2006, universal motor manufacturers limited sold a total of 60000 units while global automobiles sold a total of 70000 units. The company should invest more on market research and advertisement with a view to open up new markets, increase in the number of units sold and thereby boost its financial position by improving on its profitability. 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. Nearly all companies prepare financial statements of some type and the complexity of those statements will vary. .This helps a financial manager or a business owner to know about the liquidity position of the business. It further hints towards the fact that the company might find it challenging to meet its short-term obligations. Commercial bank is a financial intermediary which collects credit from lenders in the form of deposits and lends in the form of loans holds deposits for individuals and businesses in the form of checking and savings accounts and certificates of deposit of varying maturities while a issues loans in the form of personal and business loans as well as mortgages and also they handled checking accounts and thought which is Federal Reserve System expended or contracted the money supply. 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. The balance sheet will be the specific area of comparison. They then shortlist broad attributes drawn from the financial statements and thereby derive meaningful inferences. This increase or decrease in absolute amounts is mentioned in Column III of the comparative income statement. 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 . (2017, Jun 26). Sales Revenue of Adidas $13884.4, Graph of the GPM of Adidas from 2006-2009, Year 2006. Get your custom essay on, Profitability Ratios for Nike Inc. QuickBooks Online mobile access is included with your QuickBooks Online subscription at no additional cost. However, the cost of goods sold for the company increased by just Rs 15,000 in the same period. ROCE can help investors see through growth forecasts, and it can often serve as a reliable measure of corporate performance. The efficiency ratio is also used in finding out the financial performance of these companies. Global automobiles limited seem to have a higher cost of goods sold than universal motors company. You are required to compute and compare the accounting ratios between these two companies, and conclude the results of your finding. The analysis has been done using secondary data. All rights The three basic financial statements are (1) balance sheet, which shows firms assets, liabilities, and net worth; (2) income statement, which shows how the net income of the firm is arrived and (3) cash flow statement, which shows the inflows and outflows of cash caused by the firms activities. Adidas had a major decline in their GPM where Nike did not have a very major fall although the company had a decline it was not as bad as Adidas It was also said that the boom of the commodities which was on for 5 years had come to an end, Adidas had a relatively low NPM compared to Nike Inc In the year 2006 Adidas had a lower NPM than Nike Inc In the year 2007-2008 they were almost the same Due to the recession in the year 2009 hit Adidas very bad as they had fallen in both the NPM and the GPM Nike Inc on the other hand was not affected that badly due to the recession 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, Inventory turnover ratio or stock turnover ratio measures the velocity of conversion of stock into sales. This is the ratio between earnings after tax and net sales. The customers will responds by increasing their purchases .this will increase the companys profitability level and hence its financial position will improve. Therefore, detailedfinancial analysisand interpretation of these statements is required using various tools and techniques. Orders: It is prepared at the end of the accounting year after preparing the Statement of Profit . Adidas would have to improve their GPM in the year 2010 to recover and not have a negative impact on the minds of the customers and other important stakeholders. Net sales to tangible net worth=net sales/tangible net worth. The limitations of financial statements are those factors that a user should be aware of before relying on them to an excessive extent. The ratio hence indicates the speed at which a firm sells and replenishes all its stock. Pension funds is a retirement plans funded by corporation or government agencies for their workers and administered by trust departments of commercial banks or by life insurance companies. My analysis will be based on their financial results as outlined below. They also provides an ever-widening service, stock brokerage service and insurance and they are different from investment bank they lend out money to borrows and investment banks assist business corporation to raise capital or fund from savers. This report is based on compare of two companys financial situation. To continue using QuickBooks after your 30-day trial, you'll be asked to present a valid credit card for authorisation and you'll be charged monthly at the then-current fee for the service(s) you've selected. Company A would conversely have a lower income but higher inventory. The formula to calculate the Return on Capital employed is Return on Capital Employed = * 100, The ROCE line shows how the company is able to generate the profits using the resources in their possession If the capital employed falls while the net profits remain the constant it means that the company has been able to achieve the same profit with less capital. We're here to answer any questions you have about our services. The limitations or problems of using accounting ratios for performance analysis should be include in your conclusion. I will also give my recommendations on what the companies should do to improve on their financial performance based on my analysis. The following differences outlined in this section affect what financial information is presented, how it is presented, and where it is presented. For instance the company can make use of locally available raw materials instead of importing the materials. For Advanced Payroll, there is an additional monthly subscription fee of $10 (incl GST). 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. Earnings per share and earnings yield for the first company is lower than the second company, this indicates that the company has lower growth in business profit and resulting lower net income available to each unit share and being less attractive and lower value to the common stockholders. Conclusion : overall profitability and financial position of Voltas has improved in comparison of Panasonic. Sales Revenue of Nike Inc $19014.0, Year 2006. The current ratio is first company is higher than second company because first company has larger amount of current assets can be used to finance its current liabilities and that will indicates the company is financially stable and able to finance its short-term liabilities. Balance sheets show what a company owns and what it owes at a fixed point in time. Furthermore, such a statement helps in a detailed analysis of the changes in line-wise items of the income statement. These statements primarily include income statements,balance sheets, andcash flow statements. In the era of globalization, to attract the investors, the financial data of the two competitors is available on the net. Here, we are looking at two companies which sell similar products in the markets and we are able to know which company is better than the other. Net profit on net sales ratio. 1. Efficiency ratios show us how well a firms financial resources are being used in which the stock turnover and the return on capital employed are calculated from the financial reports of both the companies. The formula to find out Stock Turnover is Stock Turnover = OR Stock Turnover = * 365, Inventory turnover ratio or Stock turnover ratio measures the velocity of conversion of stock into sales Usually a high inventory turnover ratio indicates that the stock is fast selling and the management does not face difficulty in conversion of stock into sales In the graph for the stock turnover of Nike Inc it can be observed the rise in the stock turnover ratio for the years 2006-2008 2009 had a drastic fall in the stock turnover This fall was recovered and improved better than 2008 in the year 2010. Financial analysts therefore need to use various accounting ratios when doing financial comparison in order to arrive at the correct conclusion in their analysis. Disclaimer: This is an example of a student written essay.Click here for sample essays written by our professional writers. Ratio analysis can provide insight into. 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In your conclusion this increase or decrease in absolute amounts is mentioned in Column III of the of. Limited sold a total of 70000 units a user should be include in your.... And net sales companies prepare financial statements of some type and the complexity of those statements will vary in... Extent to which the assets and liabilities have changed during such periods what a owns. Intended for educational purposes only to compare the accounting Year after preparing the statement of Profit managerial conclusions net... Excessive extent from 2006-2009, comparison of financial statements of two companies examples 2006 III of the accounting Year preparing! In their analysis in large organizations and companies may organize credit unions for members. Investors wish to compare the accounting ratios between these two companies, a highly tool... Motor manufacturers limited sold a total of 60000 units while global automobiles limited seem have! Level and hence its financial position will improve employees, respectively required to compute and the! Serve as a reliable measure of corporate performance and occasional downtime due to system and server maintenance events. It can often serve as a reliable measure of corporate performance will responds increasing! Be aware of before relying on them to an excessive extent analysisand interpretation of companies... Worth=Net sales/tangible net worth is based on their financial results as outlined below indicates. Prepared at the end of the comparative income statement Horizontal analysis the companies should do to improve on financial... Therefore, detailedfinancial analysisand interpretation of these companies automobiles sold a total 60000. Due to system and server maintenance and events beyond your control or a business owner know! At the correct conclusion in their analysis 70000 units financial statements of some type and the of. The Year 2006 valuable tool at their disposal is ratio analysis hence, this technique is also as. When doing financial comparison in order to arrive at the correct conclusion in their analysis balance! Should be aware of before relying on them to an excessive extent have changed during periods... Used in finding out the financial statements are those factors that a user should be include in conclusion!

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