Lesson: 68
Topic: Comparing Financial Data
Objectives:
During this class, students will explore a few basic approaches to summarizing and presenting financial data.
At the conclusion of this lesson, students should be able to summarize financial data and effectively illustrate trend analysis in any of the following ways:
In addition, students will also explore "Common-Size" and "Comparative" financial statements.
At the conclusion of this lesson, students should be able to prepare a:
| Company A | Company B | |||
| REVENUE: | ||||
| Fees Earned | $3,000.00 | 100% | $4,000.00 | 100% |
| EXPENSES: | ||||
| Supplies Expense | 100.00 | 3% | 200.00 | 5% |
| Phone Expense | 100.00 | 3% | 300.00 | 8% |
| Advertising Expense | 700.00 | 23% | 900.00 | 23% |
| Wages Expense | 300.00 | 10% | 500.00 | 13% |
| Rent Expense | 700.00 | 23% | 700.00 | 20% |
| Total Expenses: | 1,900.00 | 63% | 2,600.00 | 65% |
| NET INCOME: | 1,100.00 | 37% | 1,400.00 | 35% |
| 2002 | 2001 | Increase (Decrease) | Percentage Change | |
| ASSETS | ||||
|
Current Assets | ||||
| Cash | $12,600.00 | $20,800.00 | ($8,200.00) | -39% |
| Accounts Receivable | 7,000.00 | 3,000.00 | 4,000.00 | 133% |
| Inventory | 20,000.00 | 14,000.00 | 6,000.00 | 43% |
| Total Current Assets | 39,600.00 | 37,800.00 | 1,800.00 | 5% |
| Fixed Assets | ||||
| Building | 150,000.00 | 150,000.00 | 0 | 0% |
| Accumulated Depreciation, Building | 4,000.00 | 3,000.00 | 1,000.00 | 33% |
| Office Equipment | 3,400.00 | 3,400.00 | 0 | 0% |
| Accumulated Depreciation, Equip. | 750.00 | 500.00 | 250.00 | 50% |
|
Total Fixed Assets | 158,150.00 | 156,900.00 | 1,250.00 | 1% |
|
Total Assets: | 197,750.00 | 194,700.00 | 3,050.00 | 2% |
| LIABILITIES: | ||||
| Current Liabilities | ||||
| Bank Loan | 8,000.00 | 10,000.00 | (2,000.00) | -20% |
| Accounts Payable | 1,200.00 | 700.00 | 500.00 | 71% |
| Total Current Liabilities | 9,200.00 | 10,700.00 | (1,500.00) | -14% |
| Long-Term Liabilities | ||||
| Mortgage | 90,000.00 | 100,000.00 | (10,000.00) | -10% |
| Total Liabilities | 99,200.00 | 110,700.00 | (11,500.00) | -10% |
| OWNERS EQUITY: | ||||
| Capital | 98,550.00 | 84,000.00 | 14,550.00 | 17% |
| Total Liabilities & Owner's Equity | 197,750.00 | 194,700.00 | 3,050.00 | 2% |
Method of Instruction and Evaluation:
(Save this spreadsheet as "yourname, topic #30")
Expectations Addressed:
The "Internal Control, Financial Analysis, and Decision Making" strand of the BAF3M Ministry of Education Curriculum Guidelines outlines all of the following specific expectations. The expectations addressed by this lesson have been highlighted below.
Internal Control Procedures:
describe the basic elements of an internal control system (e.g., separation of duties, pre-numbered documents, rotation of staff);
apply appropriate control measures used in accounting for assets (e.g., petty cash procedures, bank reconciliation procedures);
describe the role of budgeted financial statements in planning, controlling, and evaluating business results (e.g., difference between budgeted and actual income statements);
describe the role and work of an auditor.
Financial Analysis:
explain the importance of current assets and current liabilities when interpreting a balance sheet;
analyse a company’s liquidity and solvency by using simple financial ratios (e.g., current ratio, debt ratio) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements);
analyse a company’s profitability by using simple financial ratios (e.g., gross profit percentage, return on equity) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements).
Decision Making:
describe how accounting information is used by company personnel (e.g., department managers, owners) in making decisions;
explain the role of financial analysis in decision making from the standpoint of potential investors (e.g., mutual fund managers, institutional investors, individual investors);
describe how accounting information is used by individuals or organizations outside the company (e.g., governments, Ontario Securities Commission, police, forensic accountants) in making decisions.
Reference: text, chapter #16, pages 738-741