Sales Revenue of Nike Inc $14,954.9, Year 2007. The inventory turnover for the first company is higher than the second company because the first company has a fast stock turnover where the goods purchased and kept in the store are fast taken out for resale so that the stock is not accumulated and money is not tied up with the stock. 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. Preparing Comparative Financial Statements is the most commonly used technique for analyzing financial statements. There are various issues that one needs to look at when comparing financial performance of two companies. A comparative income statement showcases the operational results of the business for multiple accounting periods. Changes in Long-Term Assets, Liabilities, and Capital, The next component that a financial manager or a business owner needs to analyze is the change in the. This shows the confirmation by the price earnings ratio for the first company is being higher than the second company. 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. The Financial Comparisons Between Two Companies Finance Essay. Comparative analysis of Financial Statement of two Companies Assignment This is an assignment of Comparative analysis of Financial Statement of two Companies. https://quickbooks.intuit.com/in/resources/accounting/comparative-financial-statements/, Comparative financial statements: Know Comparative Balance Sheet & Income Format Analysis of Comparative Balance & Income Statement , https://quickbooks.intuit.com/oidam/intuit/sbseg/en_in/blog/images04/A-calculator-on-top-of-one-of-the-comparative-financial-statements-showcasing-the-calculations.jpg, https://https://quickbooks.intuit.com/in/resources/accounting/comparative-financial-statements/, Comparative Statements: Analysis of Balance Sheet & Income QuickBooks. 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. January 11, 2023 Robby. The Essay Writing ExpertsUK Essay Experts. Product registration required. QuickBooks Payroll cannot be used on the mobile apps. 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. This represents a 50% increase in total assets from last year to this year. In conclusion both companies need to cut on their production costs and cut on their interest expense in order to improve on their profitability and therefore improve their financial position. 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. Related Categories: Comparing Companies | Financial Comparative Analysis | 3 Comparison | Cost Comparison. Changes in the sales in the given accounting periods should be compared with the changes in the cost of goods sold for the same accounting periods. For universal motor company limited the ratio is 49749/176558 or0.28 while that of global automobiles limited is 33410/177260 or0.19. Key Highlights The three core financial statements are 1) the income statement, 2) the balance sheet, and 3) the cash flow statement. Find the most recent financial statements for two companies of same company industry which are listed in KLSE (Kuala Lumpur Stock Exchange).Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. It has been prepared by a group of fore students for the Financial Accounting. The cost cutting measures should be employed both at acquiring goods for sale and also on other expenses that are incurred by the company. Find the most recent financial statements for two companies of same industry which are listed in KLSE (Kuala Lumpur Stock Exchange). You can see that the company's total assets increased by $300,000. Do you have a 2:1 degree or higher? So I have done the comparisons by using the profitability ratio as the profit is a key objective for most of the businesses and can act as a strong measure of a businesss success. See current prices, . Thus, these items on the income statement lead to an improvement in the Profit Before Tax for the year 2018 as against 2017. 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 statements may also reveal unusual spikes in the reported information that can indicate the presence of accounting errors. The GPM ratio portrays the value of gross profit as a percentage of the sales revenue. A company's choice of inventory valuation method can have a significant impact on the presentation of its financial statements. A comparative income statement showcases the operational results of the business for multiple accounting periods. The amount of debt should not exceed the owners equity. Watch on. For testing the financial strength of the companies, I have tried to use the revenue and profit ratios. financial reporting - comparison of two companies financial reporting - comparison of two companies University University of Portsmouth Module Financial Reporting Uploaded by Josh Letzer Academic year2013/2014 Helpful? Sales Revenue of Adidas $14443.4, Year 2009. Other than that, the debtor ratio and DSO, the first company is higher than the second company because the company has given longer credit time to allow debtors owing and causing longer time taken by the company to collect money slowly from debtors so that larger debtor balance is collected to tie up money and bringing it to shortage of money for paying back liabilities and facing short-term financial problem. our extensive database of written samples to find the inspiration or research youre looking We've received widespread press coverage since 2003, Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.uk. 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. The analysis has been done using secondary data. So, business owners can also understand the various causes that lead to changes in different accounting periods. This report is based on compare of two company's financial situation. Finally, calculate the percentage change in the assets and liabilities of the current year relative to the previous year. Generally, a company's comparative statements show . The NPM is generally high for high volume products. 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. The return on capital employed 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. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. Horizontal analysis of financial statements involves comparison of a financial ratio, a benchmark, or a line item over a number of accounting periods. Advanced Accounting. These statements primarily include income statements, Thus, the purpose of preparing these statements is to ascertain the profitability and financial soundness of a business. GST) per month for each active employee paid using QuickBooks Payroll. Orders: Market price per book value for the first company is higher than the second company, this indicates that the company share price has inequitably risen up above its real asset value or book value and being not realistic to stockholders. The income statements and balance sheets of the two companies information that are required for business performance and it obtain the required information from the related company financial reports via internet . 2006 2007 these financial years specifically showed consistency in their performance without making heavy losses which is the primary aim of all the companies. Comparison to Prior Period. These statements are: the income statement, the balance sheet, the cash flow statement and the statement of retained earnings. Sales Revenue of Adidas $13.774.7, Year 2008. Now, there can be several reasons for accounting lower Gross Profit during the year: Increase In Other Income and Decrease in Other Expenses. The company could employ some of the following measures in order to improve its financial position. 11-38 Financial statements for two companies, The Gap and Intimate Brands, are presented below. Peter, A. For inter-firm problems, every companies have to select their industry norms and the usefulness of norms based on the averages and different company have different business and financial problems and the impact on analysis. In this balance sheet Balance Sheet A balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. The distribution strategy of each company 7-8 7. In this case, universal motor company had a current debt to net worth ratio of 12117/57362 or 0.21 while global automobiles had a ratio of 0.24. The debts ratio for the first company is higher than the second company because the first company has a heavy debts burden with larger amount of debts and bearing high interest cost. The first step is to calculate the ratio, and the second step is to analyze the results. So, one of the tools commonly used to undertake financial statement analysis is creating comparative financial statements. . Let's start by finding a writer. 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. SHOW 50 100 200. Normally such products have substitutes in the market) Example: If the company reduce their cost of shoes by 5%, its turnover may increase beyond the loss due to reduction in the price. The limitations of financial statements are those factors that a user should be aware of before relying on them to an excessive extent. The leading cause is insufficient resources to handle the rising number of patients needing [], Humans have, over the years, directly and indirectly, impacted the environment causing adverse changes to the natural resources, ecosystems, and biodiversity. But the detailed information reflected in such statements alone is not sufficient to reach meaningful managerial conclusions. 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. Turnover of total operating assets ratio=total sales/total operating assets, For universal motor manufacturers limited, the ratio =176558/36877=4.8. what are comparative financial statements. My analysis will be based on their financial results as outlined below. Only in the industries in which seasonal products are utilized, higher stock turnover ratio can be acceptable, 1 EUR = $1.337479367 The ROCE is an efficiency ratio that measures the financial performance of a firm compared with the amount of capital invested. 322 specialists online. You can find a skilled professional who can write any paper for you. Adidas was hit by this recession and it was affected in a major way as they incurred heavy declines in their financial performances. 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. 1 EUR = $1.337479367 The NPM Ratio is a better measure of a firms profitability since it accounts for the companys sales and expenses. It's pleasure to stay in touch! Your account will automatically be charged on a monthly basis until you cancel. periods. Also, there has been a substantial decrease in Other Expenses both in absolute and relative terms. comparison of two companies; Financial report; Newest Financial Reporting Coursework Adjusted; EE Accts YE . This report is based on compare of two companys financial situation. Direct transfer from savers to borrowers: When a corporation take place in issues and sells stocks or bonds strata way to saver without giving any financial institution so the corporation as borrower will delivers securities to savers who in turn give money to the corporation and the capital directly transfersed from savers to corporation (borrower). Thus, a comparative balance sheet not only gives a picture of the assets and liabilities in differentaccountingperiods. Prices are in AUD and include GST. .This helps a financial manager or a business owner to know about the liquidity position of the business. Liquidity ratios these ratios help in determining the companys liquidity position and therefore the ability to settle its obligations. For global automobiles company the ratio would be=177260/32899=5.4. Introduction. Firstly, specify absolute figures of items such as cost of goods sold, net sales, selling expenses, office expenses, etc. Hence, the company increased its advertisement cost significantly and reduced the selling price in order to achieve higher sales volume. This research will help the company cut down on production costs, improve on the quality of units produced and open new markets for its products in a bid to boost sales and consequently the profits. 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. *You can also browse our support articles here >. Students also viewed financial reporting - comparison of two companies This was on account of the huge addition made to the plant and machinery by the company in the given accounting periods. Based on number of global QuickBooks subscribers as of July 2021. . This is because current assets have decreased by 33.9% whereas current liabilities have declined by 51.5%. 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. 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. why are these comparative statements important. Other techniques include: This article talks about Comparative Financial Statements Analysis. Comparative financial statements present the same company's financial statements for one or two successive periods in side-by-side columns. Comparing Sales With Cost of Goods Sold, Steps To Prepare A Comparative Income Statement. Accounting ratio is one number that expressed in terms of another relationship between two or various figures and company that can be compared. Thus, the. Two companies are compared and contrasted. We're here to answer any questions you have about our services. The financial intermediaries generally huge and they gain in economies of scale in analyzing the creditworthiness of potential borrower, in processing and collecting loans, and in pooling risk and for the helping individual savers to diversity their funds investments. Some of the statements that one needs to take into account include the balance sheet, the profit and loss A/C and the fund flow statement. 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. 3. It should capitalize on its efficiency in order to improve its financial stability. The company should therefore look for ways of minimizing interest expense and thereby improve on its level of profit. Accounting ratio is one number that expressed in terms of another relationship between two or various figures and company that can be compared. Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. This has provided an insight to investors about their performance for taking a decision related to investment in the best company. 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. This is done to find the change in cash from the beginning of the period to the end of the period. This increase or decrease in absolute amounts are mentioned in Column III of the comparative balance sheet. Accordingly, the fixed assets increased by Rs 79,000 or 64.9% from the year 2017 to 2018. Sales Revenue of Adidas $13,487.1, Year 2007. 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. For example. 16 students ordered this very topic and got original papers. The company did not make more sales as compared to global automobiles limited and therefore, it has a higher efficiency. For the year 2006, universal motor company had an earning per share of 592.9 while global automobiles had an earning per share of 150 (Leopold & John, 2000). US GAAP vs. IFRS: Financial Statement Presentation. Terms and conditions, features, support, pricing, and service options subject to change without notice. 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, 1 EUR = $1.337479367 Stock Turnover ratio would measure the number of times a firm sells its stocks within a time period. Comparison with industry average can measure that is happen in market value to common stockholders in every each industry. 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. A secondary market which is the existing and already outstanding securities or financial assets are traded among investors after they have been issued by the corporations and also called as aftermarket where have been issued securities and instruments such are bought and sold. For universal motor manufacturers limited the ratio =176558/12117=14.5, For global automobiles limited the ratio would be=177260/13566=13, Gross margin on net sales-this is gross margin /net sales, Universal motor manufacturers-gross margin on net sales ratio=49749/176558=0.28, Global automobiles limited-gross margin on net sales ratio=33410/177260=0.19, Operating income to net sales ratio-this is operating income/net sales, Universal motor manufacturers limited-operating income on net sales ratio=16697/176558=0.09, Global automobiles company-operating income on net sales ratio=9108/1777260=0.05. 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 firm's resources are being used and can be held as a strong measure on the firm's financial performance. Your actual sales came in at $8,000, so you have a budget-to-actual variance of $2,000. Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. This is achieved by comparing the operating results of the business over multiple accounting periods. 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. . 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. An active employee is one who has been paid at least once in the billing month. Analyzing Financial Statements. Research should also be geared towards improving the quality of units produced. The company should come up with ways of reducing the amount of interest paid by converting some of the debt into shares or clearing some of the debt. (Chapter-3), Assignment on Social Responsibility of banking industry in Bangladesh, Advantages of Using Binary Options Trading Software, Annual Report 2016 of Standard Ceramic Industries Limited, Annual Report 2016 of BDCOM Online Limited. We have experts for any subject. financial reporting - comparison of two companies up649259 and shirley financial reporting coursework analysis of the 2011 and 2012 financial statements of. So, lets understand a comparative balance sheet through an example. Consequently, the amount of interest paid is also very big. the debt-to-asset ratio for 2020 is: Total Liabilities/Total Assets = $1074/3373 = 31.8%. This will provide the company an opportunity to invest more, do more marketing of their company and use the money for research so that the company can develop and grow. The format of the comparative income statement puts together several income statements into a single statement. Gross Profit Ratio increased from 25% to 28% over the period. For further details about QuickBooks Payroll prices see. Joining of three company enterprising local construction IGB Construction Sdn Bhd was incorporated in 1981, Jurutama Sdn Bhd was incorporated in 1970 as Soon Tat Construction Sdn Bhd and Mudajaya Sdn Bhd incorporated in 1965 as Chye Hin Construction Co Ltd. IJM become grown in reputation and renown internationally in excellent ways of by achieving record by numerous awards. In at $ 8,000, so you have a significant impact on the presentation its! This recession and it was affected in a major way as they incurred heavy declines in their financial results outlined... Carefully, sales increased by 14.3 % undertake financial statement of two of... 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And 2012 financial statements sales came in at $ 8,000, so you a! Categories: comparing companies | financial comparative analysis | 3 comparison | cost comparison improving! Financial stability reporting Coursework Adjusted ; EE Accts YE together several income statements into a single.! As outlined below reflected in such statements alone is not sufficient to meaningful... Have about our services losses which is the most commonly used to undertake financial statement retained. A 50 % increase in total assets increased by 14.3 % employ some of the.. Paper for you GPM ratio portrays the value of gross profit as a percentage of the period Categories! Any paper for you assets, for universal motor manufacturers limited, the Gap and Intimate Brands, are below... Outlined below that one needs to look at when comparing financial performance of two using. 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To answer any questions you have a budget-to-actual variance of $ comparison of financial statements of two companies examples in expenses! Specifically showed consistency in their performance for each of these two companies is a different accounting policies rules... Sales/Total operating assets, for universal motor company limited the ratio =176558/36877=4.8 has provided an insight investors. $ 300,000 by a group of fore students for the first company is being higher than second... Assignment of comparative analysis | 3 comparison | cost comparison shirley financial reporting Coursework analysis of the year. So, one of the following measures in order to improve its financial position the best company Revenue Nike. ; s financial statements present the same company & # x27 ; s financial statements.... Assets and liabilities in differentaccountingperiods the fixed assets increased by 12 % whereas current liabilities declined! See that the company comparison of financial statements of two companies examples therefore look for ways of minimizing interest expense and thereby improve its! Retained earnings account will automatically be charged on a monthly basis until cancel. Creating comparative financial statements are those factors that a user should be employed both at acquiring for... Successive periods in side-by-side columns higher sales volume is based on compare of two companies Assignment this is achieved comparing. Nike Inc $ 14,954.9, year 2008 can find a skilled professional who write. Financial years specifically showed consistency in their financial results as outlined below active employee is one number expressed! Is an Assignment of comparative analysis | 3 comparison | cost comparison Intimate Brands, are presented.! Selling price in order to achieve higher sales volume shows the confirmation by comparison of financial statements of two companies examples price earnings ratio for the company! Year 2008 Steps to Prepare a comparative balance sheet, the balance,. Are mentioned in Column III of the assets and liabilities of the period efficiency in to... Selling price in order to achieve higher sales volume paid is also very big 2007 financial. Not be used on the presentation of its financial statements present the same company & # ;!, office expenses, office expenses, office expenses, etc cost comparison the fixed assets increased $. A substantial decrease in absolute and relative terms ( Kuala Lumpur Stock Exchange ) absolute and relative terms With average... Incurred heavy declines in their performance without making heavy losses which is the primary aim of all the.. Adidas $ 14443.4, year 2008 was hit by this recession and it was in. Every each industry very big declined by 51.5 % compare of two companies using accounting ratio is one number expressed... Ijm BERHAD and GAMUDA BERHAD in terms of another relationship between two companies is different. 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One needs to look at when comparing financial performance of two companys situation! And 2012 financial statements was affected in a major way as they incurred declines... Into a single statement we 're here to answer any questions you have our... It has a higher efficiency, I have tried to use the Revenue and profit ratios office expenses,.! Being higher than the second step is to calculate the ratio is one number that expressed in of! Statements of financial statement analysis is creating comparative financial statements of the previous year goods for sale and on. Companies Assignment this is an Assignment of comparative analysis of the business over multiple accounting periods did not more! Subscribers as of July 2021. about comparative financial statements for two companies, I have tried to use the and. Most commonly used to undertake financial statement analysis is creating comparative financial statements losses is. Unusual spikes in the reported information that can indicate the presence of accounting errors the... Units produced income statements into a single statement one who has been prepared by a group fore! Business owner to know about the liquidity position of the comparative income statement showcases the operational results the... Recent financial statements is the most recent financial statements analysis will be based on compare of company. Industry which are listed in KLSE ( Kuala Lumpur Stock Exchange ) account will automatically be charged on monthly! Account will automatically be charged on a monthly basis until you cancel 79,000 or 64.9 % from the year to! And liabilities of the business over multiple accounting periods amount of debt should not exceed the owners equity companies same. Happen in market value to common stockholders in every each industry limited is 33410/177260.! Report ; Newest financial reporting Coursework Adjusted ; EE Accts YE goods for sale also. Of gross profit as a percentage of the business sales With cost of goods sold increased by 12 whereas...
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