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How to write interpretation for comparative balance sheet

Horizontal analysis (also known as trend analysis) is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations.

The statements for two or more periods are used in horizontal analysis. The earliest period is usually used as the base period and the items on the statements for all later periods are compared with items on the statements of the base period. The changes are generally shown both in dollars and percentage.

Dollar and percentage changes are computed by using the following formulas:

Horizontal analysis may be conducted for balance sheet, income statement, schedules of current and fixed assets and statement of retained earnings.

Example:

An example of the horizontal analysis of balance sheet, schedule of current assets , income statement and statement of retained earnings is given below:

Comparative balance sheet with horizontal analysis:

Comparative schedule of current assets:

Comparative income statement with horizontal analysis:

Comparative retained earnings statement with horizontal analysis:

In above analysis, 2007 is the base year and 2008 is the comparison year. All items on the balance sheet and income statement for the year 2008 have been compared with the items of balance sheet and income statement for the year 2007.

The actual changes in items are compared with the expected changes. For example, if management expects a 30% increase in sales revenue but actual increase is only 10%, it needs to be investigated.

Analysis Sheet -- Motley Fool The Comparative Balance

how to write interpretation for comparative balance sheet FUNDAMENTALS FINANCIAL STATEMENT ANALYSIS: A LOOK AT THE.

The table below gives you sample Comparative Balance Sheets for a firm. With sample information from an income statement and the information from these comparative balance sheets, you can develop your Statement of Cash Flows.

The business owner must also have information from both the income statement. The primary information needed from the income statement is net income (or loss) and depreciation as both are considered cash flows to the firm.

NOTE: We are not using the figures from the sample income statement here in this analysis.

Analysis of Comparative Balance Sheets

In order to analyze your comparative balance sheets and develop your Statement of Cash Flows, you first consider any increases or decreases in your current asset and current liability accounts between the two years of balance sheet information.

Here's the rule you should always remember when developing your Statement of Cash Flows:

Increases in current asset accounts, decrease cash.

Usually, this section includes any long-term investments the firm makes plus any investment in fixed assets, such as plant and equipment. The firm invested $30,000 more in long-term investments in 2009. That shows up as a negative number as it was a use of assets. The firm also spent $100,000 for more plant and equipment.

Next is Net Cash Flows from Investing Activities , the summary of the second section of the Statement of Cash Flows.

It is a negative $130,000 since this was the outlay in 2009.

Cash Flows From Financing Activities

The last section of the cash flow statement is Cash Flows from Financing Activities. In this case, you have financed your firm with long-term bank loans that have increased by $50,000. Dividends to investors in the amount of $65,000 have also been paid, which is a cash outflow and a negative number. Net Cash Flows from Financing Activities is a negative $

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