. Compares items in a financial statement to an anchor item in the same statement. The anchor item in the balance sheet is total assets; in the statement of profit or loss it is total sales revenue. All asset, liability and equity items are expressed as a percentage of total assets and all income and expense items are expressed as a percentage of total sales revenue. When expressed in this way, the financial statements are often referred to as 'common size' statements. Lecture illustration: Gran Hotel o This is an Income Statement and therefore Net Sales is used as the base. As a result, Net Sales for each year is converted to 100%. o Now, let's look at Gross Profit compared to Net Sales O 2012 2013 2014 2015 2016 $318 400 $330 800 $352 400 $364 000 $380 000 Net Sales 100% 100% 100% 100% 100% $178 400 $170 800 $187 400 $189 000 $204 000 Gross Profit 178 400 318 400 X 100% 170 800 330 800 X 100% 187 400 x 100% 352 400 189 000 364 000 x 100% 204 000 380 000 x 100% = 56% = 51.6% = 53.2% = 51.9% = 53.7% o Now, let's look at Administrative Expense compared to Net Sales 2012 2013 2014 2015 2016 $318 400 $330 800 $352 400 $364 000 $380 000 Net Sales 100% 100% 100% 100% 100% $24 000 $15 000 $16 000 $ 16 000 $ 17 000 Admin Exp. 15 000 16 000 24 000 318 400 X 100% X 100% x 100% 16 000 364 000 x 100% 17 000 380 000 x 100% 330 800 352 400 = 7.54% = 4.53% = 4.54% = 4.40% = 4.47% Trend analysis or Index number analysis . . . Comparing business data over time to identify any consistent results or trends. To calculate a trend, it is necessary to have at least three years of data. The base year is typically given a value of 100 (Index of 100 for the base year) This analysis is used mostly when compared with other trends within the business or within the industry (businesses of various sizes). Lecture illustration: Gran Hotel Let's choose 2012 as the base year all the dollar amounts in 2012 is converted to 100. Now, let's look at Gross Profit . O O Year Dollars 100 Index 2012 $178 400 100 2013 $170 800 170 800 178 400 x 100 = 95.7 2014 $187 400 187 400 178 400 100 = 105 2015 $189 000 = 189 000 178 400 x 100 = 105.9 204 000 2016 $204 000 = x 100 = 114.3 178 400 o Now, let's look at Other Expense Year Dollars 100 Index 2012 $65 000 100 68 000 2013 $68 000 = x 100 = 104.6 65 000 2014 $69 000 = 69 000 65 000 x 100 = 106.2 70 000 2015 $70 000 x 100 = 107.7 65 000 2016 $71 000 71 000 65 000 x 100 = 109.2 orizontal analysis . . Compares the reported numbers in the current period with the equivalent numbers for a preceding period. Dollar change: Current Period Value - Previous Period Value Current Period Value - Previous Period Value Percentage change: x 100% Previous Period Value Lecture illustration Revenue Dollar change = 3 127 792 - 2 959 253 = $168 539 168 539 Percentage change = x 100% = 5.7% 2 959 253 . O O Sales and marketing expense Dollar change = 309 465 - 286 823 = $22 642 22 642 Percentage change = x 100% = 7.9% 286 823 o Income tax expense Dollar change = 43 732 48 886 = $-5 154 -5 154 Percentage change = x 100% = -10.5% 48 886 O Profit for the year Dollar change = 104 641 109 695 = $-5 054 -5 054 Percentage change = x 100% = -4.6% 109 695 . Compares items in a financial statement to an anchor item in the same statement. The anchor item in the balance sheet is total assets; in the statement of profit or loss it is total sales revenue. All asset, liability and equity items are expressed as a percentage of total assets and all income and expense items are expressed as a percentage of total sales revenue. When expressed in this way, the financial statements are often referred to as 'common size' statements. Lecture illustration: Gran Hotel o This is an Income Statement and therefore Net Sales is used as the base. As a result, Net Sales for each year is converted to 100%. o Now, let's look at Gross Profit compared to Net Sales O 2012 2013 2014 2015 2016 $318 400 $330 800 $352 400 $364 000 $380 000 Net Sales 100% 100% 100% 100% 100% $178 400 $170 800 $187 400 $189 000 $204 000 Gross Profit 178 400 318 400 X 100% 170 800 330 800 X 100% 187 400 x 100% 352 400 189 000 364 000 x 100% 204 000 380 000 x 100% = 56% = 51.6% = 53.2% = 51.9% = 53.7% o Now, let's look at Administrative Expense compared to Net Sales 2012 2013 2014 2015 2016 $318 400 $330 800 $352 400 $364 000 $380 000 Net Sales 100% 100% 100% 100% 100% $24 000 $15 000 $16 000 $ 16 000 $ 17 000 Admin Exp. 15 000 16 000 24 000 318 400 X 100% X 100% x 100% 16 000 364 000 x 100% 17 000 380 000 x 100% 330 800 352 400 = 7.54% = 4.53% = 4.54% = 4.40% = 4.47% Trend analysis or Index number analysis . . . Comparing business data over time to identify any consistent results or trends. To calculate a trend, it is necessary to have at least three years of data. The base year is typically given a value of 100 (Index of 100 for the base year) This analysis is used mostly when compared with other trends within the business or within the industry (businesses of various sizes). Lecture illustration: Gran Hotel Let's choose 2012 as the base year all the dollar amounts in 2012 is converted to 100. Now, let's look at Gross Profit . O O Year Dollars 100 Index 2012 $178 400 100 2013 $170 800 170 800 178 400 x 100 = 95.7 2014 $187 400 187 400 178 400 100 = 105 2015 $189 000 = 189 000 178 400 x 100 = 105.9 204 000 2016 $204 000 = x 100 = 114.3 178 400 o Now, let's look at Other Expense Year Dollars 100 Index 2012 $65 000 100 68 000 2013 $68 000 = x 100 = 104.6 65 000 2014 $69 000 = 69 000 65 000 x 100 = 106.2 70 000 2015 $70 000 x 100 = 107.7 65 000 2016 $71 000 71 000 65 000 x 100 = 109.2 orizontal analysis . . Compares the reported numbers in the current period with the equivalent numbers for a preceding period. Dollar change: Current Period Value - Previous Period Value Current Period Value - Previous Period Value Percentage change: x 100% Previous Period Value Lecture illustration Revenue Dollar change = 3 127 792 - 2 959 253 = $168 539 168 539 Percentage change = x 100% = 5.7% 2 959 253 . O O Sales and marketing expense Dollar change = 309 465 - 286 823 = $22 642 22 642 Percentage change = x 100% = 7.9% 286 823 o Income tax expense Dollar change = 43 732 48 886 = $-5 154 -5 154 Percentage change = x 100% = -10.5% 48 886 O Profit for the year Dollar change = 104 641 109 695 = $-5 054 -5 054 Percentage change = x 100% = -4.6% 109 695