Horizontal And Vertical Analysis Of The Income Statement And The Balance Sheet Essay

Abstract : Analysis of financial statement of a company is an important because it is useful to obtain Information

One liability that the amount must be estimated is associated with warranties. Many companies offer warranty coverage of their products. It is important for the potential warranty expenses to be calculated in the same period as the products are sold. This expense is usually estimated as a percentage of sales revenue based on historical data relating to warranty claims. In accordance with the matching principle and GAAP standards, the revenue and warranty expense must be recorded within the same reporting period. This is the only way to ensure that revenues are not overstated and liabilities are not overstated. In this way the financial health of a company can be accurately assessed. Contingent liabilities are another type of liability that must be estimated. Contingent liabilities are potential liabilities that are contingent upon certain circumstances. They are only potentially liabilities, however, they must still be recorded as such in accordance with the matching principle. One example of a contingent liability is a pending lawsuit. If the lawsuit is lost then the company will need to pay, therefore the money must be thought of as already spent until the lawsuit is final. Another example of a contingent liability occurs when one company cosigns

Wells Fargo shows a much higher profitability ratio than Samsung, with over 8X that of Samsung. This is to be expected as services are typically more profitable than hardware sales which operate on leaner margins. Wells Fargo also outperforms Samsung significantly on return on sales with over 25X better performance. This again is attributable to better margins on services than hardware. Wells Fargo has a much stronger return on equity than Samsung with a Dupont ratio over 5X higher than Samsung's. Samsung has a stronger financial leverage ratio than Wells Fargo with almost 20% lower ratio for Samsung. Samsung also has a much lower total asset turnover than Wells Fargo. This is attributable to the quick turnover of assets in the manufacturing industry compared to the slow turnover of assets in the financial services sector.

SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement

Two traditional approaches to fund programs are grants and donations. Grant funding is typically the largest revenue source for a human service organization. Vast arrays of different grants are available for funding purposes. The XYZ Corporation can utilize these funds from government private foundations. The second traditional fundraising method to fund programs is donations. Building a relationship with the community and having a confident CEO that will reach out for donations can impact the amount of donations your organization receives annually. The XYZ Corporation has a large clientele and therefore should be able to gain recognition within the community and gain donations.

A vertical and horizontal analysis of each company's balance sheet and income statement in this particular case will be enlightening. A vertical analysis will for instance shed some light on how revenue is being used. In this case, each component of the companies' financial statements will be converted into a percentage of a key component of either the balance sheet or the income statement. A special common size balance sheet and income statement will be utilized to ease comparison. The

Assess the degree to which the firm’s accounting reflects the underlying business reality. Identify accounting distortions and evaluate their impact on profits and the sustainability of profits.

It is easy to forget that pouring money into a problem will not fix it unless revenue flows continue or are increased and expenses are controlled. Some of the easiest computations can be made with information retrieved from balance sheets and income statements provided by accountants. Ratios such as the current ratio, long-term solvency ratio, contribution ratio, programs and expense ratio, general and management expense ratio, fund-raising and expense ratio, and revenue and expense ratio can provide a picture of where a company stands now compared to where it was in past years and what may need to be done in the future.

The assumptions formed in preparation for executing the pro forma balance sheets and income statements are important because they are being used to determine whether or not your endeavors are worthwhile. Identifying important trends within the assumptions will help to give you a better idea of the market value of your

class he had missed had been devoted to a lecture and discussion of the statement of cash flows, and

Landry’s Debt to Asset ratio also increased from year 2002 to 2003. In 2002 Landry had a debt to asset ratio of 0.39. In 2003 Landry’s debt to asset ratio increased to 0.45. While both numbers are acceptable and considerably low, the increase from 2002 to 2003 could influence potential investors to not invest in Landry’s stock. This increase also suggests that Landry’s debt also increased from 2002 to 2003. Overall, while there was a slight increase from 2002 to 2003 Landry’s still had a good debt to asset ratio. We think that a contributing factor to the debt

a) Contingent liabilities are potential losses by a company via unforeseen evenst such as court cases, product liability, or disaster. A contingent asset is one that provides unforeseen benefits to the company, which also results from an unforeseen future event. Because this cannot be foreseen in advance, it does not appear on the financial statements of the company, but it can appear on the financial statement notes. In the case of BP, amounts that the company can recover from third parties as part of its contractual rights can be considered contingent assets. These are only recognized int eh accounts if they are a virtual certainty to be received.

Balance sheets and income statements are a snapshot of a company’s stability and financial situation. Combined the statements show the income, expenses, and stockholder’s equity in the company. These statements are often analyzed by financial institutions when a company comes to them needing a loan. Stockholders and other investors also look at these statements to make sure their investment will return a profit for them. This paper will look at four different companies and their balance sheets and income statements. The companies are Eastman Chemical Company, Covenant Transportation

The balance sheet and Income statement are the most important financial statements of the company that help conduct current analysis of company and evaluate its trends overtime. The balance sheet represents the company snapshots of its financial position on the last days of accounting period. Apple balance sheets, which represent a snapshot of its ending balances in asset, liability and equity account as of the date stated on the report, are changes each year from 2003 to 2014. On the other hand, the income statement shows its financial performance over 2003 to 2014. Apple basically ends its accounting period in September. Most of the long-term debts are in the form of the bonds. According to appleinsider.com, Apple recently issues a new euro bond worth about $2.26 billion with a maturity date on January 17, 2024 and coupon rate of 1.375% payable annually. The first payment will occur on January 17, 2016. Moody’s recently assigned a rating of Aa to Apple Inc. 's senior unsecured note issuance. Thus, Apple recent capital expenditure amount to 11,488 million according to morningstar.com. The analysis of financial statements is conduct to compare Apple with one of its closest rival Hewlett-Packard and twelve ratio were calculated. From table1 and chart1, the current ratio that determine the company ability to meet its short term obligation shows Apple’s current ratio is higher than that of Hewlett-Package from 2003 to 2014. That is, Apple is solvent than Hewlett Packard. Table

Financial Statements basically show the historical performance or record of the company at some previous point of time. By the time when financial statements are made public, changes are many economical areas such as market conditions, currency exchange rate and inflations can change the values of assets and liabilities. In this case there often exist discrepancies between book value of assets and their market values.