current assets/current liabilities. 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. Starting at only, Right now, you can get a professionally written essay in any discipline with a. Page. 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. Orders: The Financial Comparisons between Two Companies Finance Essay. Overview of the Three Financial Statements The QuickBooks Online mobile app works with iPhone, iPad, and Android phones and tablets. If you're reading a financial statement, you'll be able to easily identify those accounts with the biggest changes. For example, suppose one company has operating income of $100,000, and a competing company has operating income of $2,000,000. 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. 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. Companys Financial Comparison With Income Statement And Balance Sheet Numbers Mockup PDF. 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. In case the same accounting principles are not followed to prepare such statements, then the difference must be disclosed in the footnote below. . 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. However, the cost of goods sold for the company increased by just Rs 15,000 in the same period. 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 should be done by either clearing the debts or converting some of it into capital. So, one of the tools commonly used to undertake financial statement analysis is creating comparative financial statements. Steps To Prepare a Comparative Balance Sheet. The formula to calculate the Return on Capital employed is Return on Capital Employed = * 100, The ROCE line shows how the company is able to generate the profits using the resources in their possession If the capital employed falls while the net profits remain the constant it means that the company has been able to achieve the same profit with less capital. If you are such a student, you can use A company's choice of inventory valuation method can have a significant impact on the presentation of its financial statements. 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. Leopold, B. Due to lower earnings per share, stockholders or shareholders have to use more times of profit earning and more times of net cash inflow and longer period to recover back their share investment. You are free to use it as an inspiration or a source for your own work. This indicates that the company is way too dependent on the external lenders thus leading to a great financial risk for the firm. All work is written to order. GPM ratio shows the value of gross profit as a percentage of the sales revenue. 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. But the detailed information reflected in such statements alone is not sufficient to reach meaningful managerial conclusions. 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. But, it is worth noting that ratio analysis give a better picture of the trend of the company over the years, it pin points the exact highs and lows for the company and comparing the same on an industry level it can be observed whether the industry as a whole is facing crisis or it is the companys inability to generate profits. In the era of globalization, to attract the investors, the financial data of the two competitors is available on the net. It has been prepared by a group of fore students for the Financial Accounting. Financial statements are reports that summarize a company's financial position and performance. ROCE can help investors understand the growth forecasts as predicted by the company and it can often serve as a reliable measure of corporate performance. 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. This has provided an insight to investors about their performance for taking a decision related to investment in the best company. For example, a $2 million profit year looks impressive following a $0.25 million profit year, but not after a $10 million profit year. Get a head start on drafting financial statements. 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Financial accounting is the process of recording, summarizing and reporting a company's business transactions through 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. 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. Thus, this analysis helps the business owner to compare his business performance with other businesses in the industry. for. (Elastic products are such products whose demand rises and falls with a rise and fall in its price. January 11, 2023 Robby. In 2021, the debt ratio is 27.8%. As can be seen from the statements debts form a very big part of the companys liability. Get your custom essay on, Profitability Ratios for Nike Inc. 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. In such a case, the company had to spend a huge amount on the advertisement and reduce the selling price for market penetration. Furthermore, this analysis is supported by the increase in the advertisement expenses of the company for the year 2018. Related Categories: Comparing Companies | Financial Comparative Analysis | 3 Comparison | Cost Comparison. 11-38 Financial statements for two companies, The Gap and Intimate Brands, are presented below. A professional writer will make a clear, mistake-free paper for you! Credit unions is a non-profit financial institution that owned and operated entirely by members and also it provide financial services for their members, including savings and lending. Copyright 2003 - 2023 - UKEssays is a trading name of Business Bliss Consultants FZE, a company registered in United Arab Emirates. You are required to compute and compare the accounting ratios between these two companies, and conclude the results of your finding. 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. 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. You can receive the notifications now. This offer cannot be combined with any other QuickBooks Online promotion or offers. 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. Initial public offering (IOP) market that is firm by offering securities to the public for the first time and often often issued by smaller, younger companies seeking to expand, but can also be done by large private companies looking to become publicly traded. 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. What Are Comparative Financial Statements? The balance sheet shows a company's assets, liabilities, and equity at a specific . Comparison of financial statements is possible only when same accounting principles are used in preparing these statements. 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. With a Horizontal Analysis, also, known as a "trend analysis," you can spot trends in your financial data over time. Liquidity ratios these ratios help in determining the companys liquidity position and therefore the ability to settle its obligations. For example. 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. DISPLAYING: 1 - 50 of 488 Items. 2. Any information contained within this essay is intended for educational purposes only. So, lets understand a comparative balance sheet through an example. Indirect intermediately such as a bank or mutual funds from saver by issuing securities or certificate of deposit to savers. 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. Typically, the income statements and balance sheets are prepared in a comparative form to undertake such an analysis. Steps in preparing a comparative balance sheet. . 2. Comparing financial statements of two companies. Adidas and Nike Inc are the only companies which dominate the footwear, sportswear and sports equipment sector of the market. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. New York: McGraw-Hill. Adidas was hit by this recession and it was affected in a major way as they incurred heavy declines in their financial performances. 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. Conclusion : overall profitability and financial position of Voltas has improved in comparison of Panasonic. Universal motor company had a net profit ratio of 5929/176558 or 0.03 while global automobiles had a ratio of 750/177260 or 0.004. 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. From month 4 from the date of enrolment, the price will change to the then current monthly price. This was on account of the huge addition made to the plant and machinery by the company in the given accounting periods. Such inferences would then result in actions as planned by the stakeholders. . 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. This percentage change in items is mentioned in Column V of the comparative income statement. There are some major financial markets like money markets who deals asset in short term and highly liquid debt securities in borrowing and lending with original maturities in a short periods between less than one year for example it involves like certificate of deposit, federal funds and asset-backed securities. The GPM ratio portrays the value of gross profit as a percentage of the sales revenue. 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. 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. These statements primarily include income statements, Thus, the purpose of preparing these statements is to ascertain the profitability and financial soundness of a business. Analyzing these three financial statements is one of the key steps when creating a financial model. Their modification of the [], Executive Summary This paper discusses a strategys evaluation by showing how organizations in every sector face tough competition in the current corporate environment. 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 analysis has been done using secondary data. Consumer credit market is markets that deals with loans and autos and appliances, as well as loans for education and vacations and provide good services. financial reporting - comparison of two companies up649259 and shirley financial reporting coursework analysis of the 2011 and 2012 financial statements of. Our experts can deliver a custom BMW Group and Daimler Company: Accounting Policies paper for only $13.00 $11/page. 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. Furthermore, it is evident that the cost of goods sold for the company improved as an outcome of increased sales volume. However, considering the globalization, these strategies have become very subjective. and interpretation of these statements is required using various tools and techniques. Hence, this technique is also termed as Horizontal Analysis. & Eddie, M. (1997). Sales Revenue of Nike Inc $14,954.9, Year 2007. The company should therefore look for ways of minimizing interest expense and thereby improve on its level of profit. The company could employ some of the following measures in order to improve its financial position. 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. This relates to making use of the same accounting principles for preparing each of the comparative statements. QuickBooks Payroll is only accessible via QuickBooks Online subscriptions. Gross Profit Margin (GPM), Efficiency Ratios for Nike Inc.Stock Turnover, Profitability Ratios for Adidas. A comparative income statement showcases the operational results of the business for multiple accounting periods. This percentage change in assets and liabilities is mentioned in Column V of the comparative balance sheet. 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. Find out the absolute change in the items mentioned in the income statement. Similarly, Global automobiles limited seem to have very many expenses which affect its profitability as compared to universal motors company (Daniel, 1997). It should not be treated as authoritative or accurate when considering investments or other financial products. The cost cutting measures should be employed both at acquiring goods for sale and also on other expenses that are incurred by the company. These statements give an idea of the enterprise financial position of two or more periods. 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. For global automobiles company the ratio would be=177260/32899=5.4. Daniel, L. (1997). Sales Revenue of Nike Inc $16,325.9, Year 2008. This is because the sales increased during the year. Income statements show how much money a company made and spent over a period of time. 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. 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. The industry average is 0.55. 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. They also designed to meet objective in different types of savers and they used as interest bearing checking account such as money market funds. paper. Now given this, lets try to understand how a comparative statement is interpreted using an example. Deloitte's Audit & Assurance business has designed Financial Statements for Startups, an illustrative template that provides a starting point for CFOs, controllers, and others on accounting and finance teams who are tasked with preparing annual financial statements.It's ideal for companies that are getting ready for their first financial . We're now sending you a link to download your e-book, please check your e-mail. Comparative analysis of Financial Statement of two Companies, General Banking Operation of Shahjalal Islami Bank Limited. 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. During the year 2006, universal motor manufacturers limited sold a total of 60000 units while global automobiles sold a total of 70000 units. The comparison has been done through vertical, horizontal and ratio analysis. Each analysis has been supported with the help of a graph which shows the trend of the companies to arrive at the final conclusion. Adidas would have to improve their GPM in the year 2010 to recover and not have a negative impact on the minds of the customers and other important stakeholders. SHOW 50 100 200. We're here to answer any questions you have about our services. Give us your email address and well send this sample there. The ratios seek to establish the overall effectiveness of management as far as returns generated on sales and investments are concerned. The format of the comparative income statement puts together several income statements into a single statement. For Advanced Payroll, there is an additional monthly subscription fee of $10 (incl GST). They are often the chepast source of funds available to individual to borrowers. 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. 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. QuickBooks Online mobile access is included with your QuickBooks Online subscription at no additional cost. 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. When investors wish to compare the financial performance of different companies, a highly valuable tool at their disposal is ratio analysis. 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. Consequently, the amount of interest paid is also very big. We can calculate the NPM using the following formula. Let's take a debt ratio, for example . QuickBooks reserves the right to change pricing, features, support and service at any time. You will be charged $5.00 (incl. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. The NPM is generally high for high volume products. Prices are in AUD and include GST. QuickBooks Payroll cannot be used on the mobile apps. & John, W. (2000). The formula t calculate the ROCE is Return on Capital Employed = * 100, I have considered net borrowings entirely as the long term debt since working capital includes short term debt, The ROCE trend line shows how the company is able to generate the profits If the capital employed falls while the net profits remain constant this shows that the company is earning the same with less amount of capital employed The company graph shows that the ROCE was improving in the years 2006-2007 Improving ROCE is always a good sign for a company but from the year2007 there is a constant decline in the trend which is observed, Adidas had started the year 2006 above Nike Inc with a GPM higher than Nike Inc Adidas in the year 2007 has improved their companys standing as there is a constant improvement in their performance The year 2008 saw a successful year for the market as a whole and the performance of both the companies was better, however the performance of Adidas was better than Nike Inc In the year 2009 the companies had a massive decline in their GPM as the world was battling recession, which affected the entire globe as a whole. our extensive database of written samples to find the inspiration or research youre looking Study for free with our range of university lectures! Thus, this entire scenario indicates that it was quite challenging to sell the goods during 2018. For instance the company can make use of locally available raw materials instead of importing the materials. This report is based on compare of two company's financial situation. You can find a skilled professional who can write any paper for you. 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? Challenging to sell the goods during 2018 as against 2017, lets try to understand how a comparative statement! Value of gross profit as a percentage of the comparative income statement, the debt ratio, for example the! Locally available raw materials instead of importing the materials thereby improve on its level profit. 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