Professional Documents
Culture Documents
CHAPTER 03
ANALYSIS AND
INTERPRETATION OF
FINANCIAL STATEMENTS
17-2
Methods of
Financial Statement Analysis
l Horizontal Analysis
l Vertical Analysis
l Common-Size Statements
l Trend Percentages
17-5
Horizontal Analysis
CLOVER CORPORATION
Comparative Balance Sheets
December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 67,000 $ 44,000 $ 23,000 52.3
Notes payable 3,000 6,000 (3,000) (50.0)
Total current liabilities 70,000 50,000 20,000 40.0
Long-term liabilities:
Bonds payable, 8% 75,000 80,000 (5,000) (6.3)
Total liabilities 145,000 130,000 15,000 11.5
Stockholders' equity:
Preferred stock 20,000 20,000 - 0.0
Common stock 60,000 60,000 - 0.0
Additional paid-in capital 10,000 10,000 - 0.0
Total paid-in capital 90,000 90,000 - 0.0
Retained earnings 80,000 69,700 10,300 14.8
Total stockholders' equity 170,000 159,700 10,300 6.4
Total liabilities and stockholders' equity $ 315,000 $ 289,700 $ 25,300 8.7
17-13
CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
17-15
CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense
Sales increased by 6,400 7,000net
8.3% while (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
income decreased by 21.9%.
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
17-16
Vertical Analysis
For a single financial
statement, each item
Name is expressed
2ndSems 3rd Sems as 2ndaresult 3rd Result
GP percentage
GP of%a %
Zeshan 3.15 significant
3.35 0.79
total, 0.84
Allah Rahio 3.09 e.g., 3.18 0.77 0.80
all income
Sadaf 3.75 items0.94
3.75statement are 0.9375
Narjis 3.96 3.76 0.99 0.94
expressed as a
Rashid 3.01 3.45 0.75 0.86
Total 4
percentage
4
of sales
17-18
Common-Size Statements
Financial statements that show
only percentages and no
absolute dollar amounts
Name 2nd result % 3rd Result %
Zeshan 0.79 0.84
Allah Rahio 0.77 0.80
Sadaf 0.94 0.9375
Narjis 0.99 0.94
Rashid 0.75 0.86
Total
17-23
Trend Percentages
Show changes over time in
given financial statement items
(can help evaluate financial
Graphical
information of several years)
Representation of
common size
Statement
17-24
Trend lines
2nd
3rd
17-25
Trend Percentages
17-26
Trend line
for Sales
17-30