Question

Describe the changes of the Comparative Income Statement Analysis in 300 words or more.

Horizontal Analysis Income Statement

As Reported Annual Income Statement
Report Date	2016	2017	2018	Increase/ Decrease	% Change	Increase/ Decrease	% Change
Scale	Thousand	Thousand	Thousand
Net Sales	$ 65,017,000	$ 68,619,000	$ 71,309,000	$    3,602,000	5.54%	$   2,690,000	3.92%
Cost of Sales	$ 42,553,000	$ 45,210,000	$ 48,401,000	$    2,657,000	6.24%	$   3,191,000	7.06%
Gross Margin	$ 22,464,000	$ 23,409,000	$ 22,908,000	$        945,000	4.21%	$     (501,000)	-2.14%
Selling General & Administrative Expenses	$ 15,129,000	$ 15,376,000	$ 17,413,000	$        247,000	1.63%	$   2,037,000	13.25%
Depreciation & Amortization	$    1,489,000	$    1,447,000	$    1,477,000	$        (42,000)	-2.82%	$         30,000	2.07%
Operating Income/ (Loss)	$    5,846,000	$    6,586,000	$    4,018,000	$        740,000	12.66%	$ (2,568,000)	-38.99%
Interest Income (Expenses), net	$     (645,000)	$     (633,000)	$     (624,000)	$          12,000	-1.86%	$            9,000	-1.42%
Loss of extinguishment of debt	$                   -	$     (464,000)	$                   -	$     (464,000)		$       464,000	-100.00%
Pre-tax earnings (losses)	$    5,201,000	$    5,489,000	$    3,394,000	$        288,000	5.54%	$ (2,095,000)	-38.17%
Income Tax provision	$    2,108,000	$    2,042,000	$    1,080,000	$        (66,000)	-3.13%	$     (962,000)	-47.11%
Net Earnings	$    3,093,000	$    3,447,000	$    2,314,000	$        354,000	11.45%	$ (1,133,000)	-32.87%

Shares in Millions, $ in Millions	2016	2017	2018	Increase/ Decrease	% Change	Increase/ Decrease	% Change
Income Statement
Net Sales	$   94,595	$ 100,904	$ 108,203	$         6,309	6.67%	$       7,299	7.23%
Cost of Sales	$   62,282	$    66,548	$    71,043	$         4,266	6.85%	$       4,495	6.75%
Gross Profit	$   32,313	$    34,356	$    37,160	$         2,043	6.32%	$       2,804	8.16%
Operating Expenses:
Selling General & Administrative Expenses	$   17,132	$    17,864	$    19,513	$             732	4.27%	$       1,649	9.23%
Depreciation & Amortization	$      1,754	$      1,811	$      1,870	$               57	3.25%	$             59	3.26%
Impairment loss	$             -	$             -	$          247	$                -		$           247
Total operating expenses	$   18,886	$    19,675	$    21,630	$             789	4.18%	$       1,955	9.94%
Operating Income	$   13,427	$    14,681	$    15,530	$         1,254	9.34%	$           849	5.78%
Interest and other (income) expenses:
Interest and Investment Income	$         (36)	$          (74)	$          (93)	$             (38)	105.56%	$           (19)	25.68%
Interest Expenses	$         972	$      1,057	$      1,051	$               85	8.74%	$             (6)	-0.57%
Other	$             -	$             -	$            16	$                -		$             16
Interest and other, net	$         936	$          983	$          974	$               47	5.02%	$             (9)	-0.92%
Earnings before provision for income taxes	$   12,491	$    13,698	$    14,556	$         1,207	9.66%	$           858	6.26%
Provision of Income Taxes	$      4,534	$      5,068	$      3,435	$             534	11.78%	$     (1,633)	-32.22%
Net Earnings	$      7,957	$      8,630	$    11,121	$             673	8.46%	$       2,491	28.86%

Answer 1

Comparative financial statements are those statements that enable intra-firm and inter-firm comparisons of financial statements over a period of time. In other words, these statements help the accounting users to evaluate and assess the financial progress in the relative terms. These statements express the absolute figures, absolute change, and the percentage change in the financial items over a period of time. Comparative Financial Statements present the financial data in such a manner that is easily understandable and can be analyzed without any ambiguity. If the accounting policies and practices for the treatment of the items are same over the period of study, only then the Comparative Financial Statements enable meaningful comparisons.

Percentage = Absolute Change/Base Year *100

Analysis- Company 1

1. Sales of the company have increased by 3.92% during the year 2018 whereas the cost of goods sold has also increased more than sales i.e. 7.06%. From this, we can infer that the company has not followed an efficient sales strategy consequent of which the gross profit of the company has decreased by 2.14% compared to the previous year 2017 where gross profit increased by 4.21%.

2. In 2018, operating expenses have increased at a higher rate thus resulting in operating losses, i.e. operating income decreased by -38.99% as compared to 2017 where operating income increased by 12.66%.

3.Net earnings have also decreased by -32.87% during 2018 as compared to 2017 where Net earnings increased by 11.45%. This indicates the deterioration in the operating efficiency of the company.

Analysis- Company 2

1. Sales of the company have increased by 7.23% during the year 2018 whereas the cost of goods sold has also increased but at a lesser rate 0f 6.75%. From this, we can infer that the company has followed an efficient sales strategy consequent of which the gross profit of the company has increased by 8.16% compared to the previous year 2017.

2. In 2018, operating expenses have also increased at 9.94% and operating profit has increased at a lesser rate than the rate of operating expenses.

3.Net earnings has also increased by 28.86% during 2018 as compared to 2017 where Net earnings increased by 8.46%. This indicates the improvement in the operating efficiency of the company.