The main aim of my commentary is to investigate the financial performance of Adidas and Nike Inc which are two rival companies. Research should also be geared towards improving the quality of units produced. Accounting and Finance for Non-Specialists. For example, a $2 million profit year looks impressive following a $0.25 million profit year, but not after a $10 million profit year. 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? Financial statements are reports that summarize a company's financial position and performance. Daniel, L. (1997). Lets Understand Comparative Statement in Detail. 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. Income statements show how much money a company made and spent over a period of time. 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. Peter, A. Thus, this entire scenario indicates that it was quite challenging to sell the goods during 2018. Net Profit Margin =, The trend in the above graph shows the NPM of the company Adidas over 4 years. Compare the statements such as the profit and loss and inventory to see if the results are reported in a similar fashion, says Analyst Prep. 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. 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 Financial Comparisons Between Two Companies Finance Essay. Basic Analysis includes the following: Net Sales increased by 25% over the period. Nearly all companies prepare financial statements of some type and the complexity of those statements will vary. Sensational Two Comparison Bank Statements Sheet Of Balance Financial Ally Companies On Common-size Statements Financial Statements Where Each Items Value Is Listed As A Percentage Of Or In Relation To Another Value Each Items Value Is Listed As A Percentage Of AnotherThis Compares Items Showing Their Relative Size And Their Relative Significance See Figure 311 Common Common-Size StatementsOn . Hence, this technique is also termed as Horizontal Analysis. Given that the company is able to make a lot of sales, it should acquire more capital which should be used in research. 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. However their profitability is not the same especially when the profitability is compared with the annual revenue. The owner must look at the last two years of the firm's balance sheets and compare the differences between the two in order to develop the Statement of Cash Flows.The table below gives you sample Comparative Balance Sheets for a firm. 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. Comparison to the company's past three years shows that this ratio is usually 0.3 for the company. Comparative Financial Statements, as the word suggests, are the statements that show the financial numbers of more than one year (consecutive periods) of an entity. 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. Evaluate the financial position and performance for each of these two companies using accounting ratio analysis. 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 company should therefore look for ways of minimizing interest expense and thereby improve on its level of profit. GST) per month for each active employee paid using QuickBooks Payroll. 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. By continuing, you agree to our Terms and Conditions. 3. 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. 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. In general, there are five types of financial statements include the income statement, statement of financial . 322 specialists online. Your account will automatically be charged on a monthly basis until you cancel. 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. For example, net sales are usually reported as. This shows the confirmation by the price earnings ratio for the first company is being higher than the second company. 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. Eric, P. (1999). But you can one from professional essay writers. Moot Court Examples - Lecture notes ; Final lab report - Grade: 80 . Hence, lets understand: Try QuickBooks Invoicing & Accounting Software 30 Days Free Trial. relating to the accounting periods considered for analysis. Comparative analysis of Financial Statement of two Companies Assignment This is an assignment of Comparative analysis of Financial Statement of two Companies. This is done by subtracting the previous years item amounts from the current year ones. 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 NPM is generally high for high volume products. 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. Only in the industries in which seasonal products are utilized, higher stock turnover ratio can be acceptable, 1 EUR = $1.337479367 The ROCE is an efficiency ratio that measures the financial performance of a firm compared with the amount of capital invested. Typically, the income statements and balance sheets are prepared in a comparative form to undertake such an analysis. It also reveals the extent to which the assets and liabilities have changed during such periods. Consequently, the amount of interest paid is also very big. (2017, Jun 26). What Are Comparative Financial Statements? 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. Global Automobiles Company on the other hand has 700 shareholders who own a total of 5 million shares in the company. In the era of globalization, to attract the investors, the financial data of the two competitors is available on the net. This percentage change in assets and liabilities is mentioned in Column V of the comparative balance sheet. 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. In such a case, the company had to spend a huge amount on the advertisement and reduce the selling price for market penetration. Starting at only, Right now, you can get a professionally written essay in any discipline with a. The year 2009 was a very bad year as the world was hit by a major recession and had created a major slump in the case of many businesses. 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. 1. By accessing and using this page you agree to the Terms and Conditions. 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. The ROCE is also an indicator of the profitability of a company. Ratio analysis can provide insight into. It also have many kind of tax deferred saving plans to provide benefits to the participants when they retire. Two companies are compared and contrasted. "Utilize the power of Moore's Law to bring smart, connected devices to every person on earth.". Devices sold separately; data plan required. To export a reference to this article please select a referencing stye below: If you are the original writer of this essay and no longer wish to have your work published on UKEssays.com then please: Our academic writing and marking services can help you! 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. Consider the following balance sheets of M/s Kapoor and Co as on December 31st, 2017 and December 31st, 2018 for the illustration. They also designed to meet objective in different types of savers and they used as interest bearing checking account such as money market funds. Most companies begin their financial statements with the income statement. The absolute currency amounts are converted into the percentages for the purpose of comparison. The limitations of financial statements are those factors that a user should be aware of before relying on them to an excessive extent. The cost cutting measures should be employed both at acquiring goods for sale and also on other expenses that are incurred by the company. Consider the following income statement for M/s Singhania for the years ended December 31st, 2017 and December 31st, 2018. https://quickbooks.intuit.com/in/resources/accounting/comparative-financial-statements/, Comparative financial statements: Know Comparative Balance Sheet & Income Format Analysis of Comparative Balance & Income Statement , https://quickbooks.intuit.com/oidam/intuit/sbseg/en_in/blog/images04/A-calculator-on-top-of-one-of-the-comparative-financial-statements-showcasing-the-calculations.jpg, https://https://quickbooks.intuit.com/in/resources/accounting/comparative-financial-statements/, Comparative Statements: Analysis of Balance Sheet & Income QuickBooks. 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. It is prepared at the end of the accounting year after preparing the Statement of Profit . A company's choice of inventory valuation method can have a significant impact on the presentation of its financial statements. - Assume that company A uses the FIFO inventory method and company B uses the LIFO inventory method for valuing its inventory. US GAAP vs. IFRS: Financial Statement Presentation. From the information above the following ratios can be deduced. Adjustments include those related to investments, inventory, property, plant, and equipment; goodwill; and off-balance-sheet . Comparing Sales With Cost of Goods Sold, Steps To Prepare A Comparative Income Statement. Ratio analysis makes it possible to measure the effectiveness of any kind of business. 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. Thus, theGross Profitfor M/s Singhania did not increase significantly. (Elastic products are such products whose demand rises and falls with a rise and fall in its price. 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. 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. 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. Pricing, terms and conditions, including service options, are subject to change. Together, they give youand outside people like investorsa clear picture of your company's financial position. Current debt to net worth ratio-this ratio compares the relationship between the invested capital and borrowed fund. *You can also browse our support articles here >. 2. This is done to find the change in cash from the beginning of the period to the end of the period. The ratios include income ratios, profitability ratios, liquidity ratios, working capital, bankruptcy, coverage and leverage ratios among others (Eric, 1999). 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. Turnover of total operating assets ratio=total sales/total operating assets, For universal motor manufacturers limited, the ratio =176558/36877=4.8. The two companies though being in similar business did not perform in the same manner. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. It should not be treated as authoritative or accurate when considering investments or other financial products. On the other hand, the current liabilities have decreased by Rs 27,000 only. For total assets turnover, the first company is also higher than the second company because first company has a higher sales generated from the assets for the effective use of assets in business activities to increase the production. The present research has been conducted for comparing the financial statements of two different companies from pharmaceutical industry. 1. 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. This is because current assets have decreased by 33.9% whereas current liabilities have declined by 51.5%. Leopold, B. Furthermore, such a statement helps in a detailed analysis of the changes in line-wise items of the income statement. Give us your email address and well send this sample there. Chp 1 - Strategy (SBL Notes by Sir Hasan Dossani), Acoples-storz - info de acoples storz usados en la industria agropecuaria, Newest Financial Reporting Coursework Adjusted, Consolidations 1 AFR - Lecture notes 10-15, Consolidations 2 AFR - Lecture notes 10-15, Consolidations 3 AFR - Lecture notes 10-15. This is based on two companys financial position which is helpful for the companies and us to know the real situation. 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. In large organizations and companies may organize credit unions for their members and employees, respectively. Net sales to tangible net worth=net sales/tangible net worth. This technique determines the profitability and financial position of a business by comparing financial statements for two or more time periods. 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. 2. This wills in turn impact positively on customer confidence. 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. Income Tax Expenses doubled from 00 to 000 and Interest expense increased by 5.88%. These amounts are mentioned in Column I and Column II of the comparative balance sheet. Changes in the sales in the given accounting periods should be compared with the changes in the cost of goods sold for the same accounting periods. Find out the absolute change in the items mentioned in the balance sheet. 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. If you are such a student, you can use Now given this, lets try to understand how a comparative statement is interpreted using an example. During the year 2006, universal motor manufacturers limited sold a total of 60000 units while global automobiles sold a total of 70000 units. On the other hand, another measurement base which companies may consider when structuring their financial statements is current value also known as 'fair value' main purpose is to measure the use of information that is updated to reflect the conditions at the measurement date and incorporate both positive and negative changes [Maynard, J . On the other hand, the owners equity has improved by only 34%. 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 financial statements of the business or an organization helps in sharing the financial position of the business to the creditors, investors, and analysts. , long-term liabilities and capital of a business. QuickBooks reserves the right to change pricing, features, support and service at any time. This will provide the company an opportunity to invest more, do more marketing of their company and use the money for research so that the company can develop and grow. There are three main types of financial statements: the balance sheet, income statement, and cash flow statement. Firstly, specify absolute figures of items such as cost of goods sold, net sales, selling expenses, office expenses, etc. This relates to making use of the same accounting principles for preparing each of the comparative statements. Free resources to assist you with your university studies! The companies can be compared by the revenues they earned over those financial years, the sales of the company, the sales turnovers of the company, using the various tests and to comment on the performance of the company overall. 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. For instance the company can make use of locally available raw materials instead of importing the materials. We're now sending you a link to download your e-book, please check your e-mail. 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. Orders: Balance sheets show what a company owns and what it owes at a fixed point in time. It has been prepared by a group of fore students for the Financial Accounting. We've received widespread press coverage since 2003, Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.uk. But the detailed information reflected in such statements alone is not sufficient to reach meaningful managerial conclusions. Get 20% of Your First Order amount back in Reward Credits! & John, W. (2000). 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. Accordingly, the fixed assets increased by Rs 79,000 or 64.9% from the year 2017 to 2018. We have audited the accompanying consolidated balance sheets of The Gap, Inc. and subsidiaries as of January 31 . why are these comparative statements important. Furthermore, such a statement helps in a detailed analysis of the changes in line-wise items of the income statement.

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