comparison of financial statements of two companies examples

At the same time the trading of the stock and bonds that they get in financial market take place direct between buys and sellers and also financial market can be a good relationship by domestic or international business level in communication. The Net Profit Margin Ratio is a better measure of a firms profitability since it accounts for the companys sales and expenses. 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 two companies though being in similar business did not perform in the same manner. The calculation of dollar changes or percentage changes in the statement items or totals is horizontal analysis. 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. that may affect the financial health of your company. Need a professionally written The following comparative information is provided for company A and B wherein company A uses the LIFO method while company B uses the FIFO method for valuing inventories. It also have many kind of tax deferred saving plans to provide benefits to the participants when they retire. Adjustments include those related to investments, inventory, property, plant, and equipment; goodwill; and off-balance-sheet . January 11, 2023 Robby. for. 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. In such a case, the company had to spend a huge amount on the advertisement and reduce the selling price for market penetration. 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. The sole purposes for investing in a company would be to earn dividends or at least get a capital gain. Hence, this technique is also termed as Horizontal Analysis. Adidas and Nike Inc are the only companies which dominate the footwear, sportswear and sports equipment sector of the market. Get 20% of Your First Orderback in Rewards. Other techniques include: This article talks about Comparative Financial Statements Analysis. This percentage change in items is mentioned in Column V of the comparative income statement. Get in touch with one of our experts for instant help! Preparing Comparative Financial Statements is the most commonly used technique for analyzing financial statements. Company with heavy debts burden is risky for not able to finance or not able to pay back its debts or maybe it is being forced to dispose or to sell its assets for paying back the debts. Our experts can deliver a custom BMW Group and Daimler Company: Accounting Policies paper for only $13.00 $11/page. You can convert this difference to a percentage of the base year by dividing $300,000 by $600,000, which equals 0.5. 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. And there are two companies are selected for business performance measurement that is : IJM is a Corporation Berhad is an a international competitive Malaysian conglomerate with business in construction, properties, industries, plantations and infrastructure systematic industry. so in this matter they have theur own way to solve their problems. This indicates that the company is way too dependent on the external lenders thus leading to a great financial risk for the firm. 3. However in the overall performance, universal motor company seem to be doing better even though its annual revenue is lower than that of global automobiles limited however both companies have areas which they could take advantage of in order to improve their financial performance. Furthermore, it is evident that the cost of goods sold for the company improved as an outcome of increased sales volume. Sales Revenue of Nike Inc $16,325.9, Year 2008. Universal motor manufacturers are based in the United States of America while Global automobiles are based in the United Kingdom. Watch on. This is because the sales increased during the year. However its efficiency or its ability to turn the large revenue into profits is questionable bearing in mind that the company made a very small profit compared with the amount of sales made. It has been prepared by a group of fore students for the Financial Accounting. Balance Sheet of M/s Kapoor and Co. as of December 31, 2017, and December 31, 2018. The statements may also reveal unusual spikes in the reported information that can indicate the presence of accounting errors. They typically include four main types of statements: the balance sheet, the income statement, the statement of cash flows, and the statement of shareholders' equity. The ratio is calculated by dividing current liabilities with tangible net worth of a firm. Thank you! However the above three statements might not make any since in their low form since the companies being compared may be of different sizes. This is achieved by comparing the operating results of the business over multiple accounting periods. Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. Analyzing these three financial statements is one of the key steps when creating a financial model. . The analysis has been done using secondary data. Horizontal analysis stresses the trends in: Earnings. What Are Comparative Financial Statements? Both the companies have strived hard to keep the image of their companies high with the help of these reports to attract more people to invest in their company and to buy more shares. The trend in the above graph shows the variation of the GPM of the company over 5 years GPM can be increased by using two main strategies financial and non financial In 2006 2007 the company had a comparatively low GPM But in the year 2008 the company improved their performance to a higher percentage as is evident from the graph In 2009 the company did have a small fall of 0.10% in their GPM but then they recovered in the year 2010 with a sudden rise in their Gross Profit The increase in gross profit over the years could be mainly because of two methods Nike Inc could have increased the price of inelastic products to earn more profit (inelastic products are such products whose demand does not go down due to rise in its price) Example: The Nike Inc could have increased the price of their studs, which are very popular and unique; the demand of those products would not go down. The amount of debt should not exceed the owners equity. Current debt to net worth ratio-this ratio compares the relationship between the invested capital and borrowed fund. Ratio analysis makes it possible to measure the effectiveness of any kind of business. The QuickBooks Online mobile app works with iPhone, iPad, and Android phones and tablets. You may cancel at any time. 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. Lets Understand Comparative Statement in Detail. In the era of globalization, to attract the investors, the financial data of the two competitors is available on the net. As is evident from the above comparative income statement, the sales of M/s Singhania increased by Rs 20,400 during 2018 as against 2017. The ROCE is used to prove the value the business gains from its assets and liabilities, a business which owns lots of land but has little profit will have a smaller ROCE to a business which owns little land but makes same profit. There are three main types of financial statements: the balance sheet, income statement, and cash flow statement. The following differences outlined in this section affect what financial information is presented, how it is presented, and where it is presented. Such inferences would then result in actions as planned by the stakeholders. This was on account of the huge addition made to the plant and machinery by the company in the given accounting periods. Capital markets is who deals for securities where companies and governments can intermediate or long-term debts in a periods of one year or more than one years and also it include stock market. Gross profit = Sales Cost of the good / Opening stock + Purchase Closing stock, C) Operating profit margin on sales (%) = -100, = Profit after interest, after tax, after preference dividend & after minority interest -100, Total asset = Fixed assets + Current asset, ( Ordinary share capital + Reserves ) OR (Total assets Total liabilities), A) Current ratio / Working capital ratio =, B) Liquid ratio / quick ratio / acid test ratio =, A) Inventory Turnover or Stock turnover = or, Total asset = Fixed asset + current asset, Total Debts = Long time liabilities + Current liabilities, C) Times interest earned or Interest cover =. GPM ratio shows the value of gross profit as a percentage of the sales revenue. Prices are in AUD and include GST. The present research has been conducted for comparing the financial statements of two different companies from pharmaceutical industry. Such additional machinery leads to an incredible improvement in the production capacity of the company during the year. Comparative financial statements are quite useful for the following reasons: Provides a comparison of an entity's financial performance over multiple periods, so that you can determine trends. You are required Comparative Financial Statements, as the word suggests, are the statements that show the financial numbers of more than one year (consecutive periods) of an entity. Comparative Analysis of Financial Statements Between Two Companies With the objective to understand the business performance of the two entities, we reviewed the 2007 financial statements of both company and tried to obtain some insight on the profitability and solvency of each entity. Both companies are in the retail apparel industry. Study for free with our range of university lectures! US GAAP requires presenting three periods, compared to two for IFRS. . The company did not make more sales as compared to global automobiles limited and therefore, it has a higher efficiency. The Financial Comparisons between Two Companies Finance Essay. The ratios seek to establish the overall effectiveness of management as far as returns generated on sales and investments are concerned. current assets/current liabilities. This is done to find the change in cash from the beginning of the period to the end of the period. But the detailed information reflected in such statements alone is not sufficient to reach meaningful managerial conclusions. Net Profit Margin =, The trend in the above graph shows the NPM of the company Adidas over 4 years. The Essay Writing ExpertsUK Essay Experts. A business owner or a financial manager should study the following aspects of a comparative balance sheet: Working capital refers to the excess ofcurrent assetsovercurrent liabilities.This helps a financial manager or a business owner to know about the liquidity position of the business.