This paper seeks to prepare a financial statement analysis of the attached income statement and the balance sheet using appropriate business/financial vocabulary with comments on significant amounts, trends, and relationships. Two given questions are answered below to accomplish the purpose of this paper.
2. Analysis and Discussion
2. 1) Write a one-page written analysis (double-spaced) of the trend analysis (of the Income Statement & Balance Sheet) Attached.
The company exhibited almost uniform profitable results as indicated by the net profit margins of 6.17%, 7.44%, 6.86%, 7.47%, 7.52% for the year 2006, 2005, 2004, 2003 and 2002 respectively. The said almost uniform margins of not exceeding 8% for the last five years under review are surprisingly maintained despite the annual increase in total revenues which are recorded at $1,315.32, $1,182.053, $ 969.23, $773.835 and $651.97 thousands for the years 2006, 2005, 2004, 2003 and 2002 respectively.
This would still mean that the increase in revenues in absolute figures almost did caused the company to become less efficient for the year under review. There were of course slight decrease in the net profit margin from 2003 to 2004, but from 20004 it rose again in 2005 but only to decrease again in 2006. The behavior of the net profit margins is of course matched by the behavior of the gross margins which exhibited the rates of 19.58%, 20.87%, 19.88%, 20.46% and 21.09% for the years, 2006, 2005, 2004, 2003 and 2002 respectively.
The Essay on Comparison of Original Profit Statement with Revised Profit Statement
If non-traceable costs are apportioned to the different offices, the New York Office will be regarded as the most efficient and effective by holding the highest profitability level. It would be followed by Chicago, Little Rock and finally Paris. As regards to the latter office, a net loss of $1,000 is reported. This implies that the Paris Section is not trading profitably and is thus ...
As far as the balance sheet figures are concerned, there trends of increasing assets were also observed which were recorded at the values of Other Assets – Sundry of $24.80, $18.41, $15.88, $12.07 and S8.89 for the years 2006, 2005, 2004, 2003 and 2002 respectively.
2.2) Write a one-page written analysis (double-spaced) of the Common size analysis (of the Income Statement & Balance Sheet) Attached.
Common size analysis measures the relationship of the accounts to a certain base. In the case of income statement, what are made 100% are the total revenues, while in the balance sheet it is the total assets and the total liabilities and stockholders’ equity (Meigs and Meigs, 1995). Analyzing therefore the common size income statement and balance sheet analysis would mean finding further the relationship of the accounts.
Starting with the common size income statements, it may be stated that average cost of goods ratio to total revenues constitute about 78% to 80%, hence indicating that the company has a very high production cost. If this is related to company’s high investments in plant property and equipment it may be understood the company must have a very high fixed cost hence the need to produce more revenues just to cover the high fixed costs.
Continuing therefore with the balance sheet’s total assets, it may be stated that the company’s current assets constitute only about less than 20% of the total current assets as extracted from the ratios of 19.4740%, 18.65%, 15.09%, 19.74%, and 15.80% for the years 2006, 2005, 2004, 2003 and 20002 respectively. On the other hand, the bulk of the company’s total assets is found in plant property and plant equipment (Stickney and Weil, 2005) which constituted on the average ratio of 60% to 70%.
The other assets of the company are found in investments, investments and advances and other non current assets, the combined total average of which ranges from 10% to 20% for the five year period under review. It may thus be concluded that the company belongs to a capital intensive industry as indicated by high ratio of fixed assets to total assets.
The Essay on Financial statement
Accounting mainly involves analyzing, interpretation and reporting of business transaction records. Accounting provides information for decision making to the management. The purpose of accounting is to maintain proper control of finances of an organization. In other words, accounting is an information system whose purpose is to provide essential information about business financial activities. It ...
In attempting to understand its current assets which do not exceed 20% , it may be noted that the its inventories particularly finished goods is only less than 1% of its total assets thus indicating that it does not require the industry to invest much in inventory.
3. Conclusion
It may be concluded that conduct and trend analysis and common financial statement analysis facilitated the understanding of the company’s financial statement, including its performance and how it manages its assets to accomplish some financial objectives Brigham and Houston, 2002).
The results of the analysis resulted also to an understanding of the industry where the company is in that it belongs to a capital intensive industry.
References
Brigham and Houston (2002) Financial Management, Thomson South-western, New York, USA
Meigs and Meigs (1995) Financial Accounting, McGraw-Hill, New York, USA
Stickney and Weil (2005) Financial Accounting: Introduction to Concepts, Methods and Uses, Thomson South-western, New York, USA
