Preparing Comparative Financial Statements is the most commonly used technique for analyzing financial statements. Gross Profit Ratio increased from 25% to 28% over the period. 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. Comparative analysis of Financial Statement of two Companies Assignment This is an assignment of Comparative analysis of Financial Statement of two Companies. Need a custom Case Study written for you? Registered office: Creative Tower, Fujairah, PO Box 4422, UAE. The notes are usually describing each item on the cash flow statement, balance sheet, and income statement in more detail. Furthermore the fact that a large company makes a huge profit does not mean that it has performed better than a smaller company in the same industry but with a smaller amount of profit. for M/s Singhania did not increase significantly. Sales Revenue of Nike Inc $14,954.9, Year 2007. Knowledge of these factors could result in a reduction of invested funds in a business, or actions taken to investigate further. Sales Revenue of Nike Inc $16,325.9, Year 2008. (2017, Jun 26). This increase or decrease in absolute amounts is mentioned in Column III of the comparative income statement. 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). This offer cannot be combined with any other QuickBooks Online promotion or offers. By the ending from the any type of this helps them in business grown big and investors make money and give them a lot of profit. And the times interest earned for the first company is higher than the second company because it has a bearing high interest charges in relation to its available profit. They then shortlist broad attributes drawn from the financial statements and thereby derive meaningful inferences. Retrieved January 18, 2023 , from https://studydriver.com/the-financial-comparisons-between-two-companies-finance-essay/, Get in touch with our top writers for a non-plagiarized essays written to satisfy your needs. The balance sheet shows a company's assets, liabilities, and equity at a specific . This should be done by either clearing the debts or converting some of it into capital. 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. However their profitability is not the same especially when the profitability is compared with the annual revenue. 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). 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. However the above three statements might not make any since in their low form since the companies being compared may be of different sizes. Determine the absolute value of assets and liabilities related to the accounting periods. Leopold, B. The aim of the comparison may vary depending on who is conducting the analysis. These increased by 33% which is much higher as against the increase in net sales that was just 12%. 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. Financial statements are reports that summarize important financial accounting information about your business. In the essay I have used historical comparisons which involve comparing same ratio for Adidas and Nike Inc. By using historical ratios the comparisons over the years show a trend which will help us to assess the financial performance of both the companies. Sales Revenue of Adidas $14443.4, Year 2009. 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 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. This relates to making use of the same accounting principles for preparing each of the comparative statements. Consequently, this is reflected in its level off gross profit. 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. Such inferences would then result in actions as planned by the stakeholders. Comparing Sales With Cost of Goods Sold, Steps To Prepare A Comparative Income Statement. Calculate the percentage change in assets and liabilities . Peter, A. Assets. They also designed to meet objective in different types of savers and they used as interest bearing checking account such as money market funds. & John, W. (2000). Give us your email address and well send this sample there. Given that the company is able to make a lot of sales, it should acquire more capital which should be used in research. But the detailed information reflected in such statements alone is not sufficient to reach meaningful managerial conclusions. Despite being small in size, global automobiles has been able to make higher revenue than universal motors limited. valuation: The process of estimating the market value of a financial asset or liability. We're here to answer any questions you have about our services. The company should to take advantage of the fact that it seems to be more efficient as compared to global automobiles limited to improve on its sales and consequently its profitability. 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. The comparison has been done through vertical, horizontal and ratio analysis. Orders: There has been a significant increase in Other Income both in absolute and relative terms. 2009 the company Nike Inc had handled very well due to the recession the companies had been affected in a huge way like a huge decline in their work but in the case of Nike Inc there wasnt much problem for them if compared to others, 2006 2007 these financial years showed consistency in the performance of the company In the year 2008 the company had the best financial performance and had performed very well 2009 has been a very bad year in case of financial performance for Adidas as the company has had a major decline in their financial performance which is an alarming state for the company. 2. This is an assignment of Comparative analysis of Financial Statement of two Companies. This hints towards the fact that incremental sales have been made at a price lower than the sales price. why are these comparative statements important. Lets Understand Comparative Statement in Detail. Consider the following income statement for M/s Singhania for the years ended December 31st, 2017 and December 31st, 2018. Any information contained within this essay is intended for educational purposes only. The following differences outlined in this section affect what financial information is presented, how it is presented, and where it is presented. Thus, this analysis helps the business owner to compare his business performance with other businesses in the industry. Balance sheets show what a company owns and what it owes at a fixed point in time. Say for instance, if the capital employed by one company is more than the other, then even if the profit is higher it does not mean that each investor will get more dividend as number of shareholders will be more. Students also viewed financial reporting - comparison of two companies providing an insight into the financial position by comparing the Balance Sheet of Auto Syndicate Private Ltd. There are four main financial statements. 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. In general, there are five types of financial statements include the income statement, statement of financial . This increase or decrease in absolute amounts are mentioned in Column III of the comparative balance sheet. paper. 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