This shows the confirmation by the price earnings ratio for the first company is being higher than the second company. First thirty (30) days of subscription to QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll (including QuickBooks Advanced Payroll), starting from the date of enrolment, is free. If you are such a student, you can use 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. Income Tax Expenses doubled from 00 to 000 and Interest expense increased by 5.88%. Hence, this technique is also termed as Horizontal Analysis. Pricing, terms and conditions, including service options, are subject to change. that may affect the financial health of your company. This offer cannot be combined with any other QuickBooks Online promotion or offers. 3 This means that 31.8% of the firm's assets are financed with debt. 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 stock velocity indicates efficient management because more stocks are sold Graph above for the stock turnover of Adidas shows the decline in the stock turnover ratio from 2006 to 2007 Since 2007 the company had a low stock turnover However the company could not improve its stock turnover ratio over the years The low inventory turnover ratio implies that the products of the company are not selling as fast as they were in the year 2006 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. The Essay Writing ExpertsUK Essay Experts. Consider the following income statement for M/s Singhania for the years ended December 31st, 2017 and December 31st, 2018. Stop wasting your time searching for samples! Plant and machinery increased by Rs 95,200 that is by 153.5%. Sales Revenue of Adidas $13884.4, Graph of the GPM of Adidas from 2006-2009, Year 2006. They also designed to meet objective in different types of savers and they used as interest bearing checking account such as money market funds. OBJECTIVES OF THE STUDY: The study is undertaken with the following objectives * To study the liquidity position of the company. These statements primarily include income statements, Thus, the purpose of preparing these statements is to ascertain the profitability and financial soundness of a business. If you see carefully, sales increased by 12% whereas the cost of goods sold increased by 14.3%. Knowledge of these factors could result in a reduction of invested funds in a business, or actions taken to investigate further. Orders: Copyright 2003 - 2023 - UKEssays is a trading name of Business Bliss Consultants FZE, a company registered in United Arab Emirates. However the above three statements might not make any since in their low form since the companies being compared may be of different sizes. The income statements and balance sheets of the two companies information that are required for business performance and it obtain the required information from the related company financial reports via internet . 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. 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. .This helps a financial manager or a business owner to know about the liquidity position of the business. This increase or decrease in absolute amounts are mentioned in Column III of the comparative balance sheet. 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. 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. Although the notes were omitted, a statement from each company's auditor is included. For Advanced Payroll, there is an additional monthly subscription fee of $10 (incl GST). 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. Key Highlights The three core financial statements are 1) the income statement, 2) the balance sheet, and 3) the cash flow statement. 2. It's pleasure to stay in touch! Therefore, detailed. Note As can be seen from the statements debts form a very big part of the companys liability. This percentage change in items is mentioned in Column V of the comparative income statement. Such additional machinery leads to an incredible improvement in the production capacity of the company during the year. The main aim of my commentary is to investigate the financial performance of Adidas and Nike Inc which are two rival companies. US GAAP vs. IFRS: Financial Statement Presentation. Up against the competition by comparing your financial ratios with industry standards. 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. The method which is applied to find out the financial comparisons between the two companies is the efficiency ratio analysis which will help us to show how the firms resources are being used and can be held as a strong measure on the firms financial performance. Disclaimer: This is an example of a student written essay.Click here for sample essays written by our professional writers. Change in the operating profits should be analyzed. 2009 the company Nike Inc had handled very well due to the recession the companies had been affected in a huge way like a huge decline in their work but in the case of Nike Inc there wasnt much problem for them if compared to others, 2006 2007 these financial years showed consistency in the performance of the company In the year 2008 the company had the best financial performance and had performed very well 2009 has been a very bad year in case of financial performance for Adidas as the company has had a major decline in their financial performance which is an alarming state for the company. Hence a company whose earnings per share is higher would be better in the eyes of the shareholder as compared to that whose earning per share is less. A secondary market which is the existing and already outstanding securities or financial assets are traded among investors after they have been issued by the corporations and also called as aftermarket where have been issued securities and instruments such are bought and sold. Identify and discuss three different ways for transferring capital or fund from savers to borrowers in the financial market. In 2021, the debt ratio is 27.8%. Balance sheet: This displays a business's financial status at the end of a certain time period. Gamuda is a Construction , building and engineering like main project on highways, airport runways, highways, railways, tunnels, water treatment plants and dams, to infrastructure privation and the development of new townships and also it is a property and infrastructure company in Malaysia. This expenditure was provided for by the company proprietors and the external lenders. 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? Calculate the percentage change in assets and liabilities . for. You are required to compute and compare the accounting ratios between these two companies, and conclude the results of your finding. The amount of debt should not exceed the owners equity. Primary markets is an market which is corporations raise capital by issuing new securities or new shares like governments or public sector institutions can obtain funding the sale of a new market issue. 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. 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. & Eddie, M. (1997). These statements primarily include income statements,balance sheets, andcash flow statements. The calculation of dollar changes or percentage changes in the statement items or totals is horizontal analysis. It is prepared at the end of the accounting year after preparing the Statement of Profit . This increase or decrease in absolute amounts is mentioned in Column III of the comparative income statement. It has been prepared by a group of fore students for the Financial Accounting. The aim of the comparison may vary depending on who is conducting the analysis. Preparing Comparative Financial Statements is the most commonly used technique for analyzing financial statements. The ROCE is also an indicator of the profitability of a company. The NPM is generally high for high volume products. Formal and substantive conceptions of the rule of law an analytical framework, 237888 ROE Hero Guide Ed8DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD. The purpose of accounting ratio is simplifies the comprehension of financial statements and condition by successful and unsuccessful firm. This report is based on compare of two companys financial situation. The investors can decide whether the company is going through a bad phase or the industry or the index as a whole. Part 1 The NHLBI (2022) defines metabolic syndrome as a cluster of conditions and risk factors that increase the chances of developing cardiovascular diseases, coronary [], Introduction In many tertiary hospitals worldwide, pediatric patient emergencies occur frequently. 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. "To organize the world's information and make it universally accessible and useful.". For testing the financial strength of the companies, I have tried to use the revenue and profit ratios. 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. 3. Firstly, specify absolute figures of items such as cost of goods sold, net sales, selling expenses, office expenses, etc. so in this matter they have theur own way to solve their problems. Income statement: This indicates the revenue a business earned over a certain period of time and shows a business's profitability. It helps the business owner to compare the results of business operations over different periods of time. We're here to answer any questions you have about our services. Turnover of total operating assets ratio=total sales/total operating assets, For universal motor manufacturers limited, the ratio =176558/36877=4.8. They also provides an ever-widening service, stock brokerage service and insurance and they are different from investment bank they lend out money to borrows and investment banks assist business corporation to raise capital or fund from savers. Company A would conversely have a lower income but higher inventory. 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. The four general purpose financial statements include: Income Statement Balance Sheet Statement of Stockholders Equity Statement of Cash Flows This wills in turn impact positively on customer confidence. Sales Revenue of Nike Inc $16,325.9, Year 2008. Financial ratios are often made part of inter-firm comparison - a comparison of operating performance and financial status of two or more similar commercial entities working in the same industry, primarily conducted to learn and achieve a better business performance. It should not be treated as authoritative or accurate when considering investments or other financial products. 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. Analysts frequently make adjustments to a company's reported financial statements when comparing those statements to those of another company that uses different accounting methods, estimates, or assumptions. There are various issues that one needs to look at when comparing financial performance of two companies. Financial accounting is the process of recording, summarizing and reporting a company's business transactions through financial statements. This is based on two companys financial position which is helpful for the companies and us to know the real situation. It further hints towards the fact that the company might find it challenging to meet its short-term obligations. This study confined to five years data from annual reports 2006-2010, financial statements and other records of the Auto Syndicate Private Ltd. 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. The two companies we study are: Reed Elsevier and Thomson, in the filed of information and publishing. Say for instance, if the capital employed by one company is more than the other, then even if the profit is higher it does not mean that each investor will get more dividend as number of shareholders will be more. There are three main types of financial statements: the balance sheet, income statement, and cash flow statement. Thus, the purpose of preparing these statements is to ascertain the profitability and financial soundness of a business. 2. 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. Students who find it difficult to write detailed essays. This helps the business owner in understanding the trends and measuring the business performance over different time periods. For acid-test ratio, first company is also higher than the second company is because that the first company has a larger amount of liquid assets that can be used to finance its current liabilities and the company has high liquidity to finance its short-term liabilities and financially stable. English law does not normally impose liability for failure to act despite the fact that they may be compelling moral justification for doing so? 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 The analysis has been done using secondary data. You can find a skilled professional who can write any paper for you. There are four main financial statements. New York: McGraw-Hill College Publishing. 1 EUR = $1.337479367 The NPM Ratio is a better measure of a firms profitability since it accounts for the companys sales and expenses. We can calculate the NPM using the following formula. Get your custom essay on, Profitability Ratios for Nike Inc. Financial comparison between two companies or inter firm financial comparison is a method of analyzing the financial status of a business comparing it based on a number of criteria with another similar firm. 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. January 11, 2023 Robby. Financial Comparison Between Two Companies, Case Study Example 2022-10-31 . Comparison to the company's past three years shows that this ratio is usually 0.3 for the company. This is because current assets have decreased by 33.9% whereas current liabilities have declined by 51.5%. The notes are usually describing each item on the cash flow statement, balance sheet, and income statement in more detail. Learn More. Finally, calculate the percentage change in the income statement items of the current year relative to the previous year. 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. This relates to making use of the same accounting principles for preparing each of the comparative statements. This is an assignment of Comparative analysis of Financial Statement of two Companies. Gross Profit Ratio increased from 25% to 28% over the period. Intuit, QuickBooks, QB, TurboTax, ProConnect, and Mint are registered trademarks of Intuit Inc. for M/s Singhania did not increase significantly. This analysis helps each of the stakeholders to understand the long-term financial position of a business. The Balance Sheet shows the value of assets, liabilities, and capital funds at the end of the accounting year of the organisation on a particular date. In general, there are five types of financial statements include the income statement, statement of financial . 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. If you're reading a financial statement, you'll be able to easily identify those accounts with the biggest changes. This is done to find the change in cash from the beginning of the period to the end of the period. Thus, this entire scenario indicates that it was quite challenging to sell the goods during 2018. So, one of the tools commonly used to undertake financial statement analysis is creating comparative financial statements. 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. 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. All else being equal, company B's financial statements would most likely show less income because of a higher cost of goods sold. Joining of three company enterprising local construction IGB Construction Sdn Bhd was incorporated in 1981, Jurutama Sdn Bhd was incorporated in 1970 as Soon Tat Construction Sdn Bhd and Mudajaya Sdn Bhd incorporated in 1965 as Chye Hin Construction Co Ltd. IJM become grown in reputation and renown internationally in excellent ways of by achieving record by numerous awards. We can calculate the NPM using the following formula. For universal motor company limited the ratio is 49749/176558 or0.28 while that of global automobiles limited is 33410/177260 or0.19. Moreover, such a type of presentation allows the reader to compare the financial performance of the company with previous years. Sales Revenue of Nike Inc $14,954.9, Year 2007. Gross Profit Margin =. Thus, theGross Profitfor M/s Singhania did not increase significantly. Statement of Income - Two-Year Comparison Sales Cost of Sales Gross Profit Operating Expenses Operating Profit Other Income Other Expenses Earnings Before Interest and Taxes Interest Expense QuickBooks Online and QuickBooks Payroll are accessible on mobile browsers on iOS, Android, and Blackberry mobile devices. 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 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. You are free to use it as an inspiration or a source for your own work. New York: McGraw-Hill. "Utilize the power of Moore's Law to bring smart, connected devices to every person on earth.". The Financial Comparisons between Two Companies Finance Essay. 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. Basic Analysis includes the following: Net Sales increased by 25% over the period. 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. Other techniques include: This article talks about Comparative Financial Statements Analysis. Similar to global automobiles limited the company also seems to be using a very big amount of money in paying out interest for the debt it owes. Spot market refer to deals being bought or sold for on the delivery within a few days where future market refers future market deals bought or sold future delivery at some future date such six months or a year in to the future. Free resources to assist you with your university studies! 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. Or the company could have reduced the price of elastic products and increase its turnover by luring the common man with its brand name. It is based on the accounting equation that states that the sum of the total liabilities and the owner . So, business owners can also understand the various causes that lead to changes in different accounting periods. This indicates a negative cash position of the company. This should be done by either clearing the debts or converting some of it into capital. Only in the industries in which seasonal products are utilized, higher stock turnover ratio can be acceptable, The ROCE is an efficiency ratio that measures the financial performance of a company as compared with the amount of capital invested. You may cancel at any time. Together, they give youand outside people like investorsa clear picture of your company's financial position. Despite being small in size, global automobiles has been able to make higher revenue than universal motors limited. Furthermore, this analysis is supported by the increase in the advertisement expenses of the company for the year 2018. Definition and Examples. One such ratio is gross profit on net sales ratio which is gross profit/net sales. Ratio analysis is a two-step process. 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. Determine the absolute value of assets and liabilities related to the accounting periods. Accounting ratio is one number that expressed in terms of another relationship between two or various figures and company that can be compared. However its efficiency or its ability to turn the large revenue into profits is questionable bearing in mind that the company made a very small profit compared with the amount of sales made. When investors wish to compare the financial performance of different companies, a highly valuable tool at their disposal is ratio analysis. Market price per book value for the first company is higher than the second company, this indicates that the company share price has inequitably risen up above its real asset value or book value and being not realistic to stockholders. paper. 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. 16 students ordered this very topic and got original papers. 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. Ratio analysis can provide insight into. For operating profit margin on sales, (Gamuda Berhad) have a lower profit earned by company from the sales made for the ineffective control on expenditures and interest cost, incurring higher operating expenses and higher interest costs to reduce the profit earning but profit margin on sales, (Gamuda Berhad) have higher profit earned by company from the sales that is made for the effective control on its expenditures and interest costs, incurring lower operating expenses and lower interest costs to increase the profit earning than the second company. These factors could result in a reduction of invested funds in a reduction of invested funds in a.... This matter they have theur own way to solve their problems your finding comparison of financial statements of two companies examples by professional! For transferring capital or fund from savers to borrowers in the filed of information publishing! 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