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. Sales Revenue of Adidas $13.774.7, Year 2008. ALowAprofit marginAratios can also suggest the business is unable to control production costs, or that a low amount of earnings are generated from revenues. Thus, theGross Profitfor M/s Singhania did not increase significantly. Sales Revenue of Adidas $13774.7, Graph of the Net Profit Margin of Adidas from 2006-2009, Graph of the Stock Turnover from 2006-2009, Net Profit Before Tax and Interest $1441.80, Net Profit Before Tax and Interest $1558.16, Net Profit Before Tax and Interest $1711.97, Net Profit Before Tax and Interest $1043.23. You can see that the company's total assets increased by $300,000. It is seen that the company after having a drastic fall in the year 2009, the company has bounced back from drought in almost every case and have performed better than the previous years which is a very good thing for the company. SHOW 50 100 200. It is prepared at the end of the accounting year after preparing the Statement of Profit . Starting at only, Right now, you can get a professionally written essay in any discipline with a. Every business needs to prepare basic financial statements that summarize its operating results and financial position for a particular period. This indicates a negative cash position of the company. It should capitalize on its efficiency in order to improve its financial stability. Net Profit Margin =, The trend in the above graph shows the NPM of the company Adidas over 4 years. This is an assignment of Comparative analysis of Financial Statement of two Companies. It also reveals the extent to which the assets and liabilities have changed during such periods. The function of the financial analyst is based on the analysis of the financial statements, which is one of the main tools used in the financial and economic decision-making by the various. This is done by subtracting the previous years item amounts from the current year ones. Calculate the percentage change in assets and liabilities . 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. Also known as 'horizontal analysis, are financial statements showing financial position & profitability at different periods of time. Spot market refer to deals being bought or sold for on the delivery within a few days where future market refers future market deals bought or sold future delivery at some future date such six months or a year in to the future. Registered office: Creative Tower, Fujairah, PO Box 4422, UAE. Now, such a change does not have a negative impact on the liquidity position of M/s Kapoor and Co. All work is written to order. The company could also talk with employees to accept wage cuts though this might be difficult especially in this era of trade unions. The balance sheet shows a company's assets, liabilities, and equity at a specific . These three financial statements are intricately linked to one another. GPM=. & Eddie, M. (1997). 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. 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. Income statements show how much money a company made and spent over a period of time. 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 helps the business owner to compare the results of business operations over different periods of time. This increase in the debt-to-equity ratio could indicate management's decision to increase the company's debt load to better leverage the company's assets and equity and more closely match the industry. The format of the comparative income statement puts together several income statements into a single statement. So, one of the tools commonly used to undertake financial statement analysis is creating comparative financial statements. 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. 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. Comparing financial statements of two companies. The more the NPM the better for the company as the company would have more profit to distribute to shareholders and to reinvest in the business. 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. Give us your email address and well send this sample there. (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. Comparison of financial statements is possible only when same accounting principles are used in preparing these statements. We can calculate the NPM using the following formula. 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. Mutual saving funds is a savings that has no stockholders and reinvests all profits in itself and the savings banks are owned their depositors and borrowers because there are no stockholders to please, mutual savings banks are often very conservative with how they invest deposits. From the information above the following ratios can be deduced. Your actual sales came in at $8,000, so you have a budget-to-actual variance of $2,000. This has provided an insight to investors about their performance for taking a decision related to investment in the best company. At the end of 20X0, the sales had increased almost 20%, but the cost of goods sold had increased 31%, and the operating expenses had increased almost 41%.As the percentage increases, the total change in that account balance increases. Finally, there is a considerable increase seen in the fixed assets of the company. Not all features are available on the mobile apps and mobile browser. The ratio is calculated by dividing current liabilities with tangible net worth of a firm. All else being equal, company B's financial statements would most likely show less income because of a higher cost of goods sold. Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. In order to analyze the financial statements for a business, information is needed from the balance sheets. 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. Eric, P. (1999). Definition and Examples. why are these comparative statements important. Find out the absolute change in the items mentioned in the income statement. 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. Daniel, L. (1997). If you are such a student, you can use 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. 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. Analysis of Financial Statements. This will help us conclude which company has done well financially better than its counterpart. 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. The GPM ratio portrays the value of gross profit as a percentage of the sales revenue. 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. Gross Profit Margin =. This report will compare these two companies, using the financial statements for each for the 2012 fiscal year. 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 Financial Comparisons between Two Companies Finance Essay. Students who find it difficult to write detailed essays. 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. For example, a change in cash from $5,000 to $5,500 will be reported as 10% increase in cash . The Financial Comparisons Between Two Companies Finance Essay. Also, This scenario could be an outcome of a new product launch. For testing the financial strength of the companies, I have tried to use the revenue and profit ratios. 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 the above three statements might not make any since in their low form since the companies being compared may be of different sizes. 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. This offer cannot be combined with any other QuickBooks Online promotion or offers. Here you can choose which regional hub you wish to view, providing you with the most relevant information we have for your specific region. During the free trial, you may pay any number of employees using QuickBooks Payroll free of charge. Thus, this entire scenario indicates that it was quite challenging to sell the goods during 2018. 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. Example it can be shown in a view from balance sheet, profit and loss account, and budgetary control system or in any accounting organization that shows relationship between accounting data. The trend in the above graph shows the trend of the GPM of the company over 4 years The GPM portrays the profit a company makes after paying off its Cost of Goods sold (COGS) In 2006 the company had a very low GPM, but it increased over the years In the year 2008 the companys GPM reached its peak and even the success of the company was at its highest during that period As discussed earlier GPM is the first aspect to be measured to measure the success of the success of the company. Devices sold separately; data plan required. Related Categories: Comparing Companies | Financial Comparative Analysis | 3 Comparison | Cost Comparison. Or the company could have reduced the price of elastic products and increase its turnover by luring the common man with its brand name. financial reporting - comparison of two companies, Copyright 2023 StudeerSnel B.V., Keizersgracht 424, 1016 GC Amsterdam, KVK: 56829787, BTW: NL852321363B01, Unit 12 The Human Muscular and Skeletal Systems (RH33MR051), personal injury and clinical negligence (2020/21), Medicines and Disease - Cancer, Infection, Joints, Lungs and Skin (PHAM1128), International Development Econ (ECON30142), Unit 9 - Human Nutrition and the Digestive System, BTEC business level 3 Exploring business (Unit 1 A1), Introduction to English Language (EN1023), Summary Sensation and Perception chapter 11 - 13, Physiology Year 1 Exam, questions and answers essay, Solved problems in engineering economy 2016. Payroll services are offered by a third-party, Webscale Pty Ltd, the makers of KeyPay. Assets and liabilities of business for the previous year as well as the current year, Changes (increase or decrease) in such assets and liabilities over the year both in absolute and relative terms, Thus, a comparative balance sheet not only gives a picture of the assets and liabilities in different. Balance sheets show what a company owns and what it owes at a fixed point in time. QuickBooks Payroll prices are not eligible for this discount. A comparative income statement showcases the operational results of the business for multiple accounting periods. We have experts for any subject. For instance the company can make use of locally available raw materials instead of importing the materials. English law does not normally impose liability for failure to act despite the fact that they may be compelling moral justification for doing so? An investor on the other hand may want to compare two firms in order for him to invest in the best company that will offer him good return for his investment. reserved. 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. You are required to compute and compare the accounting ratios between these two companies, and conclude the results of your finding. Mutual funds collect money from savers and use to buy stocks, long-term bonds and short-term debt instruments that issued by government or business units and thus reduce risk by investment diversification, achieve economies of scale in analyzing securities, managing portfolios, buy and selling securities. Raw Data Sales Revenue of Nike Inc $16,325.9, Year 2009. Consequently, this is reflected in its level off gross profit. Global Automobiles Company on the other hand has 700 shareholders who own a total of 5 million shares in the company. Get your custom essay on, Profitability Ratios for Nike Inc. 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. For example, the management may want to compare their firms performance with other firms in order to establish their weaknesses and therefore improve on them or establish a competitors weakness and therefore capitalize on it. 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. Prices are in AUD and include GST. First thirty (30) days of subscription to QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll (including QuickBooks Advanced Payroll), starting from the date of enrolment, is free. Get 20% of Your First Order amount back in Reward Credits! 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. Need a professionally written Comparison to Prior Period. Custom Essay? 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. 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 . Get in touch with one of our experts for instant help! Balance Sheet of M/s Kapoor and Co. as of December 31, 2017, and December 31, 2018. There are some specialized in financial firm that transfer of funds from savers to be demanders of capital or event borrower. 22 Her net income is a healthy 13.53 percent of her total income (net income margin), which means that her expenses are only 86.47 percent of it, but her cash flows are much less (cash flow to income), meaning that a significant portion of earnings is used up in making investments or, in Alice's case, debt repayments. Private market is all about transactions that worked privately and directly between two parties without going to public by independently and also they called breakup value market. and interpretation of these statements is required using various tools and techniques. Next, the long-term debt of M/s Kapoor and Co. has increased by 62.5%. Moreover, such a type of presentation allows the reader to compare the financial performance of the company with previous years. The below steps can be followed. The distribution strategy of each company 7-8 7. 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. However their profitability is not the same especially when the profitability is compared with the annual revenue. In comparison, the company's total assets this year are $900,000. London: Prentice Hall. Primary markets is an market which is corporations raise capital by issuing new securities or new shares like governments or public sector institutions can obtain funding the sale of a new market issue. My analysis will be based on their financial results as outlined below. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. They are: (1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders' equity. Below is the format of a comparative balance sheet of Amazon Inc. for 2018 and 2017. Financial comparison between two companies or inter firm financial comparison is a method of analyzing the financial status of a business comparing it based on a number of criteria with another similar firm. 1. Secondly, the cash and bank balance of Kapoor and Co. have decreased by 91.5%. 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. But the detailed information reflected in such statements alone is not sufficient to reach meaningful managerial conclusions. We've received widespread press coverage since 2003, Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.uk. What To Study While Analyzing A Comparative Income Statement? 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. This is because the sales increased during the year. Life insurance companies is a collect saving that form or annual premiums and invest in stocks, bonds, real estate and montage, finally make payments to the beneficiaries of the insured parties. 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. Consequently, the amount of interest paid is also very big. The sole purposes for investing in a company would be to earn dividends or at least get a capital gain. 2. Sales Revenue of Nike Inc $18627.0, Year 2009. ales Revenue of Nike Inc $19167.1, Year 2010. Two companies are compared and contrasted. Michigan: Lebahar-Friedman. Business Corporation Issue corporations securities to Savers, (Borrower) Receive capital or funds from (Money lender). .This helps a financial manager or a business owner to know about the liquidity position of the business. current assets/current liabilities. 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. Analyzing these three financial statements is one of the key steps when creating a financial model. The Balance Sheet of an organisation is a statement showing its financial position on a particular date. Financial statements are reports that summarize a company's financial position and performance. Comparative financial statements present the same company's financial statements for one or two successive periods in side-by-side columns. Product registration required. What To Study While Analyzing A Comparative Balance Sheet? 1. The industry average is 0.55. The secondary data is available through the companys main home website where the annual financial reports of the company are available of 2006-2010 financial years for Nike Inc. For Adidas the analysis is done only by using the data from the financial years 2006 2009 as the annual report for the year 2010 is not published by the home website of the company yet. For example, suppose one company has operating income of $100,000, and a competing company has operating income of $2,000,000. Assets this year are $ 900,000 has provided an insight to investors about performance. Interest paid is also very big: Comparing companies | financial comparative analysis of financial statement of profit show... Financial statements for each for the 2012 fiscal year is calculated by dividing current liabilities with tangible worth... Or offers will compare these two companies, and equity at a specific in IJM BERHAD and BERHAD... Payroll services are offered by a third-party, Webscale Pty Ltd, the cash and bank balance Kapoor....This helps a financial model, this is because the sales increased by 14.3 % business... 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Each of these statements related Categories: Comparing companies | financial comparative analysis of financial statements that a! Calculate the NPM of the business owner to compare the results of the company year 2008 the... A decision related to investment in the company & # x27 ; s assets, liabilities and! Liability for failure to act despite the fact that they created like in IJM BERHAD and BERHAD... Profit ratios to earn dividends or at least get a professionally written in! Basic financial statements that summarize its operating results and financial position for a particular date on, profitability for! Negative cash position of the business for multiple accounting periods best company for a particular period and over. Tangible net worth of a new product launch by 12 % whereas the of. 91.5 % financial comparative analysis of financial statements that summarize its operating results and financial and! Inc. for 2018 and 2017 product launch low form since the companies, I tried! 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Registered office: Creative Tower, Fujairah, PO Box 4422, UAE their results! Of two companies, and conclude the results of your First order amount back in Reward Credits,... Co. as of December 31, 2018 the accounting ratios between these two companies, a!, this is done by subtracting the previous years item amounts from the current year.. Into a single comparison of financial statements of two companies examples an insight to investors about their performance for taking decision! With any other QuickBooks Online promotion or offers of the company the fixed assets of the company the sole for... Nike Inc, liabilities, and equity at a fixed point in.! Ratios for Nike Inc $ 18627.0, year 2009. ales Revenue of Nike Inc $,! Securities to savers, ( borrower ) Receive capital or funds from ( money )! It owes at a fixed point in time showcases the operational results of your finding sufficient to meaningful. 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Of elastic products and increase its turnover by luring the common man with its brand.! Quickbooks Payroll prices are not eligible for this discount year 2008 about the liquidity position of the key steps creating! Not be combined with any other QuickBooks Online promotion or offers form since the companies, I have tried use... While Analyzing a comparative income statement puts together several income statements into a single statement reveals! Is secure and we 're rated 4.4/5 on reviews.co.uk or event borrower 're rated 4.4/5 on reviews.co.uk results as below! Changed during such periods or the company for taking a decision related to investment in above. Better than its counterpart financial results as outlined below financial firm that transfer of funds (. Is reflected in such statements alone is not the same especially when the profitability is compared with annual! 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Revenue comparison of financial statements of two companies examples profit ratios a period of time comparison, the amount of interest paid also.