Common Size And Trend Analysis And Financial Statement

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Recommended: Chapter 4 analysis of financial statements

Common-Size & Trend Analysis
Common-size and trend analysis enable investors and companies to compare the elements that make up the financial statements. It focuses more on the internal structure of the financial statements. The trend analysis consists of horizontal analysis which shows the changes to the accounts in a year to year basis. Comparably, the vertical analysis reflects the changes within a year. The items of the financial statements are divided by the aggregate total in order to be expressed in percentage. For instance, the accounts of the Statement of Financial Position are stated as a percentage of total assets and the accounts of the Income statement are expressed as percentages of revenues or sales. The important elements of …show more content…

On the other hand, current liabilities went from 44% to 25%. Even if there is a downward shift in the representation of current liabilities to the total assets. The company gives more importance to the liabilities accounts than the current assets accounts since the current asset has a lower percentage. This analysis can also explain the company’s choice of paying the total portion of long-term debt without worrying about the impact on assets. It has a negative effect since the company will have a hard time to find alternative sources of money in case of financial emergencies. Meanwhile, the inventories account represents only 0.49% of the total assets while it was 0.41% last year. This low percentage signifies that Second Cup gives not much importance for this specific account. The increase in the percentage in not significant enough for change. Hence, with the analysis of the current assets, current liabilities and inventories accounts, it is clear the Second Cup values more the liabilities accounts. For investors, this may indicate a negative sign. If the company owes more than it owns, this may impact the shareholders’ return on investment and the company’s

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