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. Lecture notes, lectures 1-15 - immunology and microbiology - Dr. Robinson, Dr. Gould, Dr. Whiting and Dr. Kelly. 2. In the era of globalization, to attract the investors, the financial data of the two competitors is available on the net. Now, such a change does not have a negative impact on the liquidity position of M/s Kapoor and Co. Learn More. One such ratio is gross profit on net sales ratio which is gross profit/net sales. The present research has been conducted for comparing the financial statements of two different companies from pharmaceutical industry. The ROCE is also an indicator of the profitability of a company. 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. Global Automobiles Company on the other hand has 700 shareholders who own a total of 5 million shares in the company. comparison of two companies; Financial report; Newest Financial Reporting Coursework Adjusted; EE Accts YE . There are many various of types in financial market that is physical asset markets to deal with the tangible, real and physical products such as computer, machinery, real estate and other assets the financial market deal with different types of instruments such as stocks or shares, bonds, notes, mortgagees and other claims or real assets with derivative securities whose values derived from changes in the price of other assets. Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. This is good for the company The company graph shows that the ROCE was constant in 2006-2007 The company had a reasonable rise in their ROCE in the year 2008 but it dropped drastically in the year 2009, but stabilized in 2010 If the capital employed is high then there could be a decline in the ROCE which could be a reason in the year 2009 2010 is the year where the company begins stabilizing and tries to recover their standards https://www.soccerwallpaper.mackafe.com/var/albums/David-Beckham-Wallpaper-Gallery/beckham-wallpaper-adidas.jpg ADIDAS, 1 EUR = $1.337479367 The profit would be the key objective for most of the businesses and can help act as the measure of the firms financial success and performance. Starting at only, Right now, you can get a professionally written essay in any discipline with a. The statements may also reveal unusual spikes in the reported information that can indicate the presence of accounting errors. Need a custom Case Study written for you? 1. This Case Study was written by one of our professional writers. Sales Revenue of Nike Inc $19014.0, Year 2006. 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. This shows the confirmation by the price earnings ratio for the first company is being higher than the second company. Both the companies have strived hard to keep the image of their companies high with the help of these reports to attract more people to invest in their company and to buy more shares. Gross profit = Sales Cost of the good / Opening stock + Purchase Closing stock, C) Operating profit margin on sales (%) = -100, = Profit after interest, after tax, after preference dividend & after minority interest -100, Total asset = Fixed assets + Current asset, ( Ordinary share capital + Reserves ) OR (Total assets Total liabilities), A) Current ratio / Working capital ratio =, B) Liquid ratio / quick ratio / acid test ratio =, A) Inventory Turnover or Stock turnover = or, Total asset = Fixed asset + current asset, Total Debts = Long time liabilities + Current liabilities, C) Times interest earned or Interest cover =. 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. We've received widespread press coverage since 2003, Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.uk. 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. 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 . 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. April 03, 2022. , long-term liabilities and capital of a business. US GAAP requires presenting three periods, compared to two for IFRS. The aim of the comparison may vary depending on who is conducting the analysis. 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. The main aim of my commentary is to investigate the financial performance of Adidas and Nike Inc which are two rival companies. QuickBooks Online mobile access is included with your QuickBooks Online subscription at no additional cost. It has been prepared by a group of fore students for the Financial Accounting. The Financial Comparisons between Two Companies Finance Essay. The aim of the comparison may vary depending on who is conducting the analysis. 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. 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 5 aspect of business measured by accounting ratios is: Profitability that is how far the company earns profit, Liquidity is to measure the financial status, Asset management is how far. 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. Comparative Income Statement of M/s Singhania For The Years Ended December 31, 2017, and December 31, 2018. Common-size analysis is, however, also an effective way of comparing two companies with different levels of revenues and assets. Thank you! 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. Technology Mission Statement Examples. You can convert this difference to a percentage of the base year by dividing $300,000 by $600,000, which equals 0.5. No plagiarism, guaranteed! Hence, the company increased its advertisement cost significantly and reduced the selling price in order to achieve higher sales volume. Therefore, detailedfinancial analysisand interpretation of these statements is required using various tools and techniques. 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. Thus, the purpose of preparing these statements is to ascertain the profitability and financial soundness of a business. So, one of the tools commonly used to undertake financial statement analysis is creating comparative financial statements. 2008 was a good year for the company as here the company showed good signs of improvements and performed better than the years 2006, 2007 and 2009 in all cases 2010 was the best year so far as the company has made improvements and has earned the maximum in this year. The efficiency ratio is also used in finding out the financial performance of these companies. Financial analysts therefore need to use various accounting ratios when doing financial comparison in order to arrive at the correct conclusion in their analysis. Accounting ratio is one number that expressed in terms of another relationship between two or various figures and company that can be compared. Financial market means it is a organization and people who be found to borrow money from those having some valuable metals to be exchanged at efficient by market price and also they refer to the stock market, wall street, even markets. English law does not normally impose liability for failure to act despite the fact that they may be compelling moral justification for doing so? Consider the following income statement for M/s Singhania for the years ended December 31st, 2017 and December 31st, 2018. 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. Adjustments include those related to investments, inventory, property, plant, and equipment; goodwill; and off-balance-sheet . See our, For new QuickBooks customers, receive a 3, discount off the current monthly price for QuickBooks Self-Employed, QuickBooks Online Simple Start, QuickBooks Online Essentials or QuickBooks Online Plus for the first, months of service, starting from date of enrolment. 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. It's pleasure to stay in touch! . However, considering the globalization, these strategies have become very subjective. Product registration required. This offer cannot be combined with any other QuickBooks Online promotion or offers. In case the same accounting principles are not followed to prepare such statements, then the difference must be disclosed in the footnote below. Research should also be geared towards improving the quality of units produced. Comparison with industry average can measure that is happen in market value to common stockholders in every each industry. Steps To Prepare a Comparative Balance Sheet. Sales Revenue of Nike Inc $19176.1, Graph of the Stock Turnover from 2006-2010, Net Profit Before Tax and Interest $1392.0, Net Profit Before Tax and Interest $1491.5, Net Profit Before Tax and Interest $1883.4, Net Profit Before Tax and Interest $1486.7, Net Profit Before Tax and Interest $1906.7, Graph of the Return on Capital Employed from 2006-2010, Year 2006. Hence, this technique is also termed as Horizontal Analysis. The ratio is calculated by dividing current liabilities with tangible net worth of a firm. This increase or decrease in absolute amounts is mentioned in Column III of the comparative income statement. Based on number of global QuickBooks subscribers as of July 2021. 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. 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. If your specific country is not listed, please select the UK version of the site, as this is best suited to international visitors. 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. The cash flow statement uses the net income figure from the income statement and adjusts it for non-cash expenses. 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. On the other hand, the owners equity has improved by only 34%. "To enable people and businesses throughout the world to realize their full potential.". The ratio hence indicates the speed at which a firm sells and replenishes all its stock. Similarly the company could reduce the number of workers involved directly with production provided this does not have a negative effect on the quality of vehicles produced. This wills in turn impact positively on customer confidence. For example. Financial items such as cost of sales, gross profit, net income, inventories, current assets, and total assets as well as the financial ratios computed from them, will be impacted. Sales Revenue of Adidas $13,487.1, Year 2007. Moot Court Examples - Lecture notes ; Final lab report - Grade: 80 . 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. You can also use our tools to come up with interesting topics and points to argue in your Get a head start on drafting financial statements. (Elastic products are such products whose demand rises and falls with a rise and fall in its price. Consequently, the amount of interest paid is also very big. In this field there are many different kind of financial market each market use different kind of matted, terms, types of parts of country and customer and the asset banking. The company did not make more sales as compared to global automobiles limited and therefore, it has a higher efficiency. Executive Summary. We can calculate the NPM using the following formula. This will help us conclude which company has done well financially better than its counterpart. Other techniques include: This article talks about Comparative Financial Statements Analysis. Together, they give youand outside people like investorsa clear picture of your company's financial position. 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. 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. Ratio analysis is a tool for evaluating financial statements but also relies on the numbers in the reported financial statements being put into order to be used as ratios for comparison over time or across companies. 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. All notes to financial declarations are considered an integral part of the financial declarations. The NPM is generally high for high volume products. It should capitalize on its efficiency in order to improve its financial stability. This is the ratio between earnings after tax and net sales. In such a case, the company had to spend a huge amount on the advertisement and reduce the selling price for market penetration. They also designed to meet objective in different types of savers and they used as interest bearing checking account such as money market funds. "To organize the world's information and make it universally accessible and useful.". Every business needs to prepare basic financial statements that summarize its operating results and financial position for a particular period. All rights Apart from comparing income statements of its own business over different time periods, a business owner can compare the operating results of its competitor firms as well. 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. . 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. Sales Revenue of Nike Inc $18627.0, Year 2009. ales Revenue of Nike Inc $19167.1, Year 2010. Next, the long-term debt of M/s Kapoor and Co. has increased by 62.5%. It has been prepared by a group of fore students for the Financial Accounting. Thus, the. The company should come up with ways of reducing the general expenses as they form a very big part of expenses and have a negative effect on the companys profitability. Custom Essay? This is done by subtracting the previous years item amounts from the current year ones. GPM=. Finally, calculate the percentage change in the income statement items of the current year relative to the previous year. 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. Students also viewed financial reporting - comparison of two companies The ratios presented in the Financial Statements PowerPoint Template are: Current Ratio Quick Ratio Net Working Capital Ratio Return on Assets (ROA) Ratio Return on Equity (ROE) Ratio Profit Margin Assets Turnover Ratio Accounts Receivable Ratio Inventory turnover ratio Debt to Equity Ratio Interest Coverage Ratio Students who find it difficult to write detailed essays. Managers sometimes [], The ethical issue identified in this context is that the Fair Employment Practice Acts (FEPA) implementation has never been questioned by individuals such as Irene, [], In the case context, a lifeguard, Jennifer Payden, was fired by her supervisor for abandoning her assigned post unattended to save the life of a [], Financial Comparison Between Two Companies, Case Study Example, Power Point Presentation With Speaker Notes, Forest Reading Comprehension, Case Study Example, Marriot International Inc., Case Study Example, The Fair Employment Practice Act, Case Study Example, Case of the Lifeguard, Case Study Example. 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. Comparative Balance Sheet of M/s Kapoor and Co. as on December 31, 2017, and December 31, 2018. Net Profit Margin =, The trend in the above graph shows the NPM of the company Adidas over 4 years. Two companies are compared and contrasted. Sales Revenue of Adidas $14443.4, Year 2009. This indicates that the company is way too dependent on the external lenders thus leading to a great financial risk for the firm. 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. Income Statement. Horizontal analysis stresses the trends in: Earnings. Stop wasting your time searching for samples! Net profit on net sales ratio. current assets/current liabilities. This analysis detects changes in a company's performance and highlights trends. For example, comparing budget data to actual performance, you might have budgeted this month's sales at $10,000. This paper tries to compare the financial performance of two multinational vehicle manufacturing companies namely Universal motor manufacturers and Global Automobiles Company for the financial year 2008. The sole purposes for investing in a company would be to earn dividends or at least get a capital gain. Michigan: Lebahar-Friedman. We have audited the accompanying consolidated balance sheets of The Gap, Inc. and subsidiaries as of January 31 . the debt-to-asset ratio for 2020 is: Total Liabilities/Total Assets = $1074/3373 = 31.8%. Generally, a company's comparative statements show . OBJECTIVES OF THE STUDY: The study is undertaken with the following objectives * To study the liquidity position of the company. periods. future than that this fund to other corporation paying money out of fun because they are safer and more liquid them mortgage and loans. 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. Page. Key Highlights The three core financial statements are 1) the income statement, 2) the balance sheet, and 3) the cash flow statement. These increased by 33% which is much higher as against the increase in net sales that was just 12%. The company could employ some of the following measures in order to cut costs. Income Statement of M/s Singhania as of December 31, 2017, and December 31, 2018. Sales Revenue of Adidas $13.774.7, Year 2008. This report will compare these two companies, using the financial statements for each for the 2012 fiscal year. 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. This helps the business owner in understanding the trends and measuring the business performance over different time periods. Can be say that organization that underwrites and distributes the upcoming new issue of latest business corporations securities to assist corporation that is fund for financial. What the companies should do in order to improve their financial performance: The company seems to be doing well as far as making sales is concerned. From month 4 from the date of enrolment, the price will change to the then current monthly price. Free resources to assist you with your university studies! 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. One such ratio is the current ratio which is the ratio between the current assets and current liabilities i.e. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. During the free trial, you may pay any number of employees using QuickBooks Payroll free of charge. 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. Finally, calculate the percentage change in the assets and liabilities of the current year relative to the previous year. Do you have a 2:1 degree or higher? ALowAprofit marginAratios can also suggest the business is unable to control production costs, or that a low amount of earnings are generated from revenues. . The low inventory turnover ratio implies that, during that period, the sale of the company has declined The other reason for rise in the ratio could be that the company started producing for increasing its stocks, but considering the situation at that point of time, it seems highly improbable. DISPLAYING: 1 - 50 of 488 Items. Therefore, detailed. Ratio analysis can be used by not only the management to know its status, but as it projects a trend, it can be used by prospective investors, government agencies etc. Financial ratios tell about your companys performance. Firstly, specify absolute figures of assets and liabilities relating to the accounting periods considered for analysis. 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. 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. 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And liabilities relating to the then current monthly price had to spend a huge on... Ratio between earnings after tax and net sales ratio which is much higher as against the increase in sales... An integral part of the profitability of a business ; EE Accts YE it has been conducted comparing! Any discipline with a this offer can not be combined with any QuickBooks!, Inc. and subsidiaries as of January 31 at which a firm financial data of the financial declarations by $... That is happen in market value to common stockholders in every each industry its operating results financial... Received widespread press coverage since 2003, your UKEssays purchase is secure and we 're 4.4/5... Some of the tools commonly used to undertake financial statement analysis is, however considering... 03, 2022., long-term liabilities and capital of a company every each industry Newest. Study the liquidity position of M/s Kapoor and Co. as on December 31, 2017 and December 31 2018! Co. has increased by Rs 20,400 during 2018 as against 2017 of assets liabilities. Units produced consider the following income statement and adjusts it for non-cash.... 31.8 % calculate the percentage change in the reported information that can indicate presence! Statements of two different companies from pharmaceutical industry its operating results and financial soundness of a business fact! To enable people and businesses throughout the world & # x27 ; comparative... Impact on the net to investments, inventory, property, plant, December... ; to organize the world & # x27 ; s financial position performance... Of January 31 done by subtracting the previous years item amounts from the above shows! Indicate the presence of accounting errors this increase or decrease in absolute amounts is mentioned in Column III the... Indicates the speed at which a firm an integral part of the Adidas... The free trial, you may pay any number of employees using Payroll! 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When doing financial comparison in order to cut costs can convert this difference to a percentage of the may... Conducting the analysis creating comparative financial statements of two companies with different levels of revenues assets. Quot ; to organize the world & # x27 ; s financial position and performance each. Sales that was just 12 % it for non-cash expenses that was just 12 % during as. The owners equity has improved by only 34 % get a professionally written essay any... Consequently, the amount of interest paid is also very big fore students for the financial statements the income... Only 34 % can calculate the NPM using the following measures in order to improve its financial stability the periods... Debt-To-Asset ratio for the 2012 fiscal year company has done well financially better than its.. Statement comparison of financial statements of two companies examples the net income figure from the income statement of M/s Singhania as December. 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Accounting periods considered for analysis has improved by only 34 % by Rs 20,400 during as... Or 0.03 while global automobiles limited and therefore, detailedfinancial analysisand interpretation of these statements to... Prepare such statements, then the difference must be disclosed in the company being! Years Ended December 31, 2018 and assets Dr. Whiting and Dr. Kelly advertisement cost significantly and reduced the price... Make more sales comparison of financial statements of two companies examples compared to global automobiles company on the other hand has 700 shareholders own. Company could employ some of the financial statements of two different companies from industry! The ROCE is also very big is way too dependent on the external thus... Another relationship between two or various figures and company that can be.... Convert this difference to a great financial risk for the financial position and performance for each for financial. Research has been prepared by a group of fore students for the firm only 34 % year relative the! Following formula higher sales volume for analysis a percentage of the tools commonly used undertake! The cost of goods sold increased by 14.3 % these strategies have become subjective. Year 2009. ales Revenue of Nike Inc $ 18627.0, year 2007 common stockholders in every each industry 18627.0 year! Also termed as Horizontal analysis comparison of financial statements of two companies examples by one of the comparative income statement, the amount of interest is. With your QuickBooks Online promotion or offers 14.3 % advertisement cost significantly and reduced the selling price order... And highlights trends automobiles had a ratio of 5929/176558 or 0.03 while global automobiles company the! Positively on customer confidence ROCE is also termed as Horizontal analysis $ 300,000 by 600,000... 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