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Non-
current
liabilities
Financial 11091 11601 -510 -4.39%
debt
Provisions 2640 2601 39 1.49%
Deferred tax 3865 3063 802 26.18%
liabilities
Equity
Interpretation:
In the above horizontal analysis, 2015 is the base year and 2016
is the comparison year. All items on the balance sheet & income
statement for the year 2016 have been compared with the items
of balance sheet & income statement for the year 2015.
The actual changes in items are compared with the expected
changes. For example, if management expects the increase in
sales is 30% but the actual sales only increase by 10%, it needs
to be investigated.
Vertical Analysis:
Vertical analysis is a method of financial statement analysis in
which each entry for each of the three major categories of
accounts, assets and liabilities and equities, in a balance sheet
represented as a proportion of the total account.
Vertical analysis reports each amount on a financial
statement as a percentage of another item. For example, the
vertical analysis of the balance sheet is restated to be a
percentage of total assets. If inventory is $100,000 and total
assets are $400,000 then inventory is presented as 25($100,000
divided as $400,000).
Vertical analysis of an income statement results in every income
statement amount being presented as a percentage of sales. If
sales were $1,000,000 they would be restated to be
100($1,000,000 divided by$1,000,000).
Comparative balance sheet with Vertical analysis
Nestles Balance sheet
For the year ended 2015-2016
2016 2015
Non
currentAssets
Property,plant 27554 20.8% 26576 21.43%
& equipment
Goodwill 33007 25% 32772 26.43%
Non-current
liabilities
Owner
Equity
Share capital 311 0.23% 319 0.2%
Treasury (990) 0.75% (7489) 6%
shares
Translation (18799) 14% (19851) 16%
reserve
Other reserves 1198 0.90% 1345 1.08%
Interpretation:
In above vertical analysis we compare all the values of each
account of assets with total amount of asset by dividing and by
dividing each liabilities an equity account with total liabilities.
By doing so we get certain percentages as above which shows
how much part an individual account has in total account.
Similarly, by dividing all the
income statements accounts with total sales we get some
percentages which shows how much proportion of each account
is in sales. For example: CGS amount (44199/ 89469 ) that
comes 49% of 100% sales.
Ratio analysis:
In ratio analysis we find out 5 types of ratios by using the data
given in firms financial statements. These 5 types of ratios are
as below:
Debt ratio
Liquiditiy ratio
Profitability ratio
Market ratio
Activity ratio
Ratios analysisfor the year 2015:
1. Liquidity ratios:
The two basic measures of liquidity are the current ratio and the quick
ratio.
Current ratio = Current assets Current liabilities
= 29434 33321
= 0.8833
Quick ratio = (Current assets Inventory) Current liabilities
= (29434 8153) 33321
= 0.63
2. Activity ratios:
It includes the following ratios:
Inventory turnover = Cost of goods sold Inventory
= 44730 8153
= 5.48