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FSI-Chapter 2 - Horizontal Analysis
FSI-Chapter 2 - Horizontal Analysis
COMMERCE, MAHE,
MANIPAL
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [email protected]
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Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Horizontal analysis
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Horizontal Analysis Example
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Year-to-Year Change Analysis
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
1) Prepare a multi-step income statement for Kumar swami
co ltd from the following single step income statement
55,38,000
Cost and expenses:
Cost of goods sold 32,16,000
General and administrative expenses 5,25,000
Selling expenses 8,37,000
Depreciation 42,000
Interest expenses 48,000
Income tax 3,48,000
50,16,000
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Lincoln Company Comparative Income Statement
December 31, 2016 and 2015
5192
(-) Cost of Goods Sold (COGS) 5536
Gross Profit 6702 6195
3921
Selling, General & Admin Expenses 4355
Operating Income 2161 2215
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
4) Income statement of PQR ltd for the ended 31 December 2013 to
2017 are given. Examine trend of the business activities of the
company on the basis of horizontal common size data of the
statement over the years.
For the years ended 31 Dec (lakh)
2013 2014 2015 2016 2017
Total Sales 2002 1990 2220 2701 3240
Cost Of Sales 460 358 377 432 551
Gross Profit 1542 1632 1843 2269 2689
Selling and 701 697 821 1026 1166
Administrative
Expenses
Research and 320 358 400 513 617
Development
Expenses
Other Deduction 40 40 44 136 32
(Income ) Net
Operating 481 537 578 594 874
Income
Interest Expenses 21 20 10 10 12
EBT 460 517 568 584 862
Provision for Tax 160 159 168 189 251
Income From 300 358 400 395 611
Continuing
Operations
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
6) From the condensed balance sheet as on 31st Dec for the year 2012 to 2017 of
Moonlight Corporation, analyse the trend of the financial position of the company analyze
the trend of the business activities of the company through Horizontal Common size analysis
2012 2013 2014 2015 2016 2017
Assets:
Current Assets
Cash 36 50 66 38 34 38
Receivables 130 134 144 270 320 340
Inventories 122 146 170 242 308 366
Total Current Asset 288 330 380 550 662 744
Land, Property Equipment 304 310 312 620 650 600
Total Assets 592 640 692 1170 1312 1344
Liability & Owners Equity
Current Liability 82 86 104 306 390 440
Long term debt 60 60 60 260 260 320
Total liabilities 142 146 164 566 650 760
Capital stock 220 220 220 420 500 500
Retained earnings 230 274 308 184 162 84
Total owners’ equity 450 494 528 604 662 584
Total (liabilities+ Owners’ 592 640 692 1170 1312 1344
equity)
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Horizontal Income Statement – Q1
(Assignment)
2016 (In US 2015 (In US
Details $) $)
Sales 30,00,000 28,00,000
(-) Cost of Goods Sold
20,00,000
(COGS) 21,00,000
Gross Profit 900,000 800,000
General Expenses 180,000 120,000
Selling Expenses 220,000 230,000
Total Operating Expenses 400,000 350,000
Operating Income 500,000 450,000
Interest expenses 50,000 50,000
Profit before Income Tax 450,000 400,000
Income Tax 125,000 100,000
Net Income 325,000 300,000
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Vertical analysis
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
▪ 5) From the following profit and loss account and the balance sheet of Swadeshi Ltd. For the
year ended 31st December, 2010 and 2011, you are required to prepare
A common size comparative Balance Sheet and vertical common size balance sheet
Liabilities 2010 2011 Assets 2010 2011
Bills Payable 50 75 Cash 100 140
Sundry Creditors 150 200 Debtors 200 300
Tax Payable 100 150 Stock 200 300
6% Debentures 100 150 Land 100 100
6% Preference Capital 300 300 Building 300 270
Equity Capital 400 400 Plant 300 270
Reserves 200 245 Furniture 100 140
1,300 1,520 1,300 1,520
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
7) Income statement of PQR ltd for the ended 31 December 2013 to
2017 are given. Examine trend of the business activities of the
company on the basis of vertical and horizontal trend analysis of the
statement over the years.
For the years ended 31 Dec (Crores)
2013 2014 2015 2016 2017
Total Sales 2002 1990 2220 2701 3240
Cost Of Sales 460 358 377 432 551
Gross Profit 1542 1632 1843 2269 2689
Selling and Administrative Expenses 701 697 821 1026 1166
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Statement of changes in equity
TRANSFERRED TO (XX) XX
RETAINED EARNINGS
TOTAL COMPREHENSIVE X X
INCOME FOR THE PERIOD
DIVIDENDS (X) (X)
ISSUE OF SHARE CAPITAL X X XX
▪ Logo Ltd, a public company, has an Authorized share capital of 500,000 $1 ordinary shares. On 1
January 2017, the issued share capital was 100,000 $1 ordinary shares. On 31 March 2017 the
company issued a further 100,000 ordinary shares at $1.50 each.
▪
▪ On 30 September 2017 there was a bonus issue of 1 ordinary share for every 5 held.
▪
▪ You are required to:
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
3.
1. An entity has the following balances at 1st January 2015
▪ Amount ( $ )
▪ Share Capital ($2 Nominal value) 5,00,000
▪ Share Premium 50,000
▪ Retained earnings 4,00,000
▪ Revaluation reserve 1,00,000
▪ During the year 2015, the company issued 100,000 shares at $ 2.20, it paid all shareholders a dividend of $ 0.50
per share. Profit after tax amounted to $ 2,20,000.
▪ During the year 2016, there is a Revaluation gain of $50,000 which is already adjusted in the comprehensive
income statement. The profit after adjusting revaluation gain amounted to $70,000. Dividend were declared and
paid for 2016 as $ 0.10 for all shareholders. You are required to prepare the SOCIE for the year ended 2015 and
2016 for the company. Also give the interpretation based on the 2 years statement.
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Cash Flow Statement
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Definition
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Objectives
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Why Cash Flow Statement
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Advantages of cash flow
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Classifications of Cash Flows
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Classification of Cash in-flows and outflows
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Indirect Method
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Drawbacks of a statement of cash flows
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Adjustments-Operating Activities
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
▪ Changes in working capital: we adjust net profit for
changes in working capital items like trade receivables,
inventories, prepaid expenses, and trade payables.
Change in
account
balances during
the year
Use this table when adjusting Net Income to Operating Cash Flows using the
indirect method.
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Converting net profit into operating cash flow
requires three kind of adjustment
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Cash Flows from Operating Activities - Indirect Method
The indirect method adjusts net income
by analyzing noncash items.
Changes in current assets
and current liabilities.
Cash Flows
Net from Operating
Income Activities -
Indirect Method
+ Noncash
expenses such as
+ Losses and
depreciation and
- Gains
amortization.
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Indirect Method- operating activities-
Adjustments to net income
Net income
+ noncash expenses: depreciation, amortization, provisions to
expenses/debtors, etc
+ non operating expenses: Finance cost
+ loss on sale of asset
- gain on sale of asset
- Changes in working capital items
+ increases in current liabilities
+ decreases in current assets
- decrease in current liabilities
-increase in current assets
▪ = Cash flow from operating activities
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Format of the Cash Flow Statement
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Q1.From the following balances you are required to
calculate cash from operations using Indirect Method:
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Q2. Prepare statement of cash flows from Operating
activities Indirect Method
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email:
Q3.From the following balances you are required to
calculate cash from operations using Indirect Method.
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: