Hence, this technique is also termed as Horizontal Analysis. This paper tries to compare the financial performance of two multinational vehicle manufacturing companies namely Universal motor manufacturers and Global Automobiles Company for the financial year 2008. Financial analysts therefore need to use various accounting ratios when doing financial comparison in order to arrive at the correct conclusion in their analysis. The GPM ratio portrays the value of gross profit as a percentage of the sales revenue. There are three main types of financial statements: the balance sheet, income statement, and cash flow statement. Get your custom essay on, Profitability Ratios for Nike Inc. 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. Global Automobiles Company on the other hand has 700 shareholders who own a total of 5 million shares in the company. (2017, Jun 26). Similarly the company could reduce the number of workers involved directly with production provided this does not have a negative effect on the quality of vehicles produced. 1. Normally, people look at the balance sheet and the profit and loss account to know the success of the company and to decide whether they want to invest in a company or not. Comparative analysis of Financial Statement of two Companies Assignment This is an assignment of Comparative analysis of Financial Statement of two Companies. Both companies are in the retail apparel industry. 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. Need a professionally written After comparing both the companies the highlights of the discussion are: Adidas has a higher GPM as compared to Nike Inc showing that direct costs are lower for Adidas as compared to Nike Inc Adidas has a lower NPM than that of Nike Inc showing that the even though the GPM is higher for Adidas its indirect costs are so high that its overall profitability has reduced The Stock Turnover of Adidas is low compared to that of Nike Inc showing that Nike Inc is able to convert its stock into turnover faster Having the NPM and the Stock Turnover both higher than Adidas, it shows that Nike Inc have their administration and other indirect expenses lower than that of Adidas Due to recession Adidas would be hit more as the stock turnover ratio is low despite high GPM Adidas has a higher ROCE than that of Nike Inc. The Balance Sheet shows the value of assets, liabilities, and capital funds at the end of the accounting year of the organisation on a particular date. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. Looking for a flexible role? It also reveals the extent to which the assets and liabilities have changed during such periods. This increase or decrease in absolute amounts are mentioned in Column III of the comparative balance sheet. Now, such a change does not have a negative impact on the liquidity position of M/s Kapoor and Co. 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. Formal and substantive conceptions of the rule of law an analytical framework, 237888 ROE Hero Guide Ed8DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD. It also have many kind of tax deferred saving plans to provide benefits to the participants when they retire. We have experts for any subject. Horizontal analysis stresses the trends in: Earnings. Companys Financial Comparison With Income Statement And Balance Sheet Numbers Mockup PDF. 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. 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. For example, a businessperson who produces shoes may purchase a machine that automatically stitches leather that hopes in the time saved will allow for the production of more shoes and increased sales or another example investment banking house are Merrill Lynch and Morgan Stanley Dean Witter. . However their profitability is not the same especially when the profitability is compared with the annual revenue. & Eddie, M. (1997). It is based on the accounting equation that states that the sum of the total liabilities and the owner . However, the cost of goods sold for the company increased by just Rs 15,000 in the same period. Balance sheet: This displays a business's financial status at the end of a certain time period. On the other hand, the owners equity has improved by only 34%. Furthermore, such a statement helps in a detailed analysis of the changes in line-wise items of the income statement. 22 From the information above the following ratios can be deduced. Percentage Change = (Absolute Increase or Decrease)/Absolute Figure of the Previous Years Item) * 100. The ratios seek to establish the overall effectiveness of management as far as returns generated on sales and investments are concerned. Terms and conditions, features, support, pricing, and service options subject to change without notice. On the other hand, the current liabilities have decreased by Rs 27,000 only. Thus, the purpose of preparing these statements is to ascertain the profitability and financial soundness of a business. The ratio is calculated by dividing current liabilities with tangible net worth of a firm. Accounting ratio is one number that expressed in terms of another relationship between two or various figures and company that can be compared. What the companies should do in order to improve their financial performance: The company seems to be doing well as far as making sales is concerned. Devices sold separately; data plan required. Financial items such as cost of sales, gross profit, net income, inventories, current assets, and total assets as well as the financial ratios computed from them, will be impacted. It further hints towards the fact that the company might find it challenging to meet its short-term obligations. Website studydriver.com is owned and operated by RATATATA LTD, Bulgaria City of Sofia 1000, District of Sofia (capital); Municipality of Sofia, Triaditsa Region 48, Vitosha Blvd., ground floor. RM1580125000 + RM363348000 + RM8595000 + RM19973000 + RM19260000 + RM40866000, Total Debts = Long time liabilities + current Liabilities = RM3303461000 +RM112250000, Total Debts = Long time liabilities + current Liabilities = RM1312946000 + RM1930241000 = RM3243187000, RM2347737000 + RM4203173000 = RM6550910000, (Market value of investment to stockholder of company). Ratio analysis is a tool for evaluating financial statements but also relies on the numbers in the reported financial statements being put into order to be used as ratios for comparison over time or across companies. This is good for the company The company graph shows that the ROCE was constant in 2006-2007 The company had a reasonable rise in their ROCE in the year 2008 but it dropped drastically in the year 2009, but stabilized in 2010 If the capital employed is high then there could be a decline in the ROCE which could be a reason in the year 2009 2010 is the year where the company begins stabilizing and tries to recover their standards https://www.soccerwallpaper.mackafe.com/var/albums/David-Beckham-Wallpaper-Gallery/beckham-wallpaper-adidas.jpg ADIDAS, 1 EUR = $1.337479367 The profit would be the key objective for most of the businesses and can help act as the measure of the firms financial success and performance. You may cancel at any time. 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. We have audited the accompanying consolidated balance sheets of The Gap, Inc. and subsidiaries as of January 31 . What Are Comparative Financial Statements? Each analysis has been supported with the help of a graph which shows the trend of the companies to arrive at the final conclusion. Other techniques include: This article talks about Comparative Financial Statements Analysis. Key Highlights The three core financial statements are 1) the income statement, 2) the balance sheet, and 3) the cash flow statement. "To enable people and businesses throughout the world to realize their full potential.". By continuing, you agree to our Terms and Conditions. Turnover of total operating assets ratio=total sales/total operating assets, For universal motor manufacturers limited, the ratio =176558/36877=4.8. As we can see in the comparative balance sheet above, the current assets of Kapoor and Co. have decreased by Rs 35,200 in the year 2018 over 2017. The limitations or problems of using accounting ratios for performance analysis should be include in your conclusion. What To Study While Analyzing A Comparative Income Statement? Daniel, L. (1997). Furthermore, such a statement helps in a detailed analysis of the changes in line-wise items of the income statement. Our academic experts are ready and waiting to assist with any writing project you may have. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. However, considering the globalization, these strategies have become very subjective. . QuickBooks Payroll is only accessible via QuickBooks Online subscriptions. Balance sheets show what a company owns and what it owes at a fixed point in time. I can help you save hours on your homework. This relates to making use of the same accounting principles for preparing each of the comparative statements. It helps the business owner to compare the results of business operations over different periods of time. It offers an overview of a business's liabilities, assets, and shareholder equity. 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. In general, there are five types of financial statements include the income statement, statement of financial . In the era of globalization, to attract the investors, the financial data of the two competitors is available on the net. 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