Draft conclusion based on the below vertical and horizontal analysis, and include the possible strategic risk issue which the company might encounter.
Income Statement - Horizontal Analysis
|
2019 |
2018 |
2017 |
2016 |
2015 |
2014 |
|
|
Retail Sales |
20 877.00 |
19 994.00 |
18 575.00 |
19 038.00 |
17 285.00 |
15 227.00 |
|
Variance |
883.00 |
1 419.00 |
(463.00) |
1 753.00 |
2 058.00 |
- |
|
% |
4% |
8% |
-2% |
10% |
14% |
0% |
|
Profit from Operations |
3 938.00 |
2 732.00 |
3 048.00 |
3 603.00 |
3 076.00 |
2 537.00 |
|
Variance |
1 206.00 |
(316.00) |
(555.00) |
527.00 |
539.00 |
- |
|
% |
44% |
-10% |
-15% |
17% |
21% |
0% |
Vertical analysis
|
2019 |
Retail Sales |
X |
100 |
= |
|
|
Total Sales |
|||||
|
20 877 000 |
X |
100 |
= |
93.36% |
|
|
22 361 000 |
|||||
|
2018 |
Retail Sales |
X |
100 |
= |
|
|
Total Sales |
|||||
|
19 994 000 |
X |
100 |
= |
94.38% |
|
|
21 185 000 |
|||||
|
2017 |
Retail Sales |
X |
100 |
= |
|
|
Total Sales |
|||||
|
18 575 000 |
X |
100 |
= |
94.39% |
|
|
19 679 000 |
In this question, vertical and horizontal analysis of income statement is shown.
While in vertical analysis of income statement, every item is shown as a percentage of sales of a given year; in horizontal analysis, comparison is made between the items of two or more years as a percentage of some base year figure.
Both the approaches help in better understanding the financial position, operating efficiency, profitability and growth potential of the company.
in first case, we see the retail sales have grown up over the years. At first glance, we see an upward swing in the company's retail sales from 2014 to 2019. However, over these years, a great volatility can be seen in the rate of change in retail sales. While the variance in year 2015 was as high as 14%, it reduces to only 4% in 2019. It even reduced to -2% in 2017. This shows that company doesn't have a history of stable performance. This shows a poor sales plan without careful planning. Though the accurate reasons for the dropdown in percentage of variance can be identified only with the help of detailed information but the possible reasons include poor strategic planning or unfavourable market conditions.
while on one hand, we see a decline in the percentage of sales variance, we also observe a steady flow in the revenue from operations but with no significant increase with respect to time.
In vertical analysis, the relationship of retail sales with respect to total sales also remains static.
After looking at the figures, we conclude that company may face severe financial stress if it continues to happen in the future . We also observe that the company does not have any growth plans for expanding its operations.As the company is not improving its performance since last 5 years it may severely lose it market value and the creditworthiness. Thus, it must take a roundabout route and revive it's strategic design.
Draft conclusion based on the below vertical and horizontal analysis, and include the possible strategic risk...
Mr. Price, also known as MRP, is a publicly traded retail company based in South Africa, well known for its focus on value. The group retails apparel, as well as homeware and sportswear through owned and franchised stores across 14 countries, primarily in Africa. It also services customers globally through its online stores. Focus on the Financial statements of the company and not of the Group. Issue an overall conclusion on the cash flow of mr price Income Statement: Vertical...