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Copyright © Texas Education Agency, 2014. All rights reserved.
Copyright © Texas Education Agency, 2014. All rights reserved.
3
Also called Trend Analysis
Shows changes in amounts on financial
statements over time
Compares the same accounts over time
(apples to apples)
Uses a Comparative Balance Sheet (includes
more than one accounting period on the
same document)
Copyright © Texas Education Agency, 2014. All rights reserved.
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Changes can be shown in dollar amounts or
percentages.
Dollar amounts are simply calculated by
subtracting the original period from the
current period. (example on next slide)
Percentages are calculated by dividing the
dollar amount of change by the amount in
the original period, then multiplying the
answer by 100. (example on next slide)
Copyright © Texas Education Agency, 2014. All rights reserved.
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ABC Corporation
Comparative Balance Sheet
December 31, 2010 and 2011
Assets
Current Assets:
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Total Current Assets
Property, Plant, and Equipment:
Land
Buildings
Equipment
Total Property, Plant, and Equipment
Total Assets
Liabilities and Stockholder’s Equity
Current Liabilities
Accounts Payable
Salaries Payable
Total Current Liabilities
Long-Term Liabilities
Mortgage Payable
Bonds Payable
Total Long-Term Liabilities
Total Liabilities
Stockholder’s Equity
Capital Stock
Retained Earnings
Total Stockholder’s Equity
Total Liabilities and Stockholder’s Equity
Increase (Decrease)
2011
2010
Amount
$ 7,000
39,000
3,500
4,000
$53,500
$6,500
25,000
5,000
3,700
$40,200
$500
14,000
(1,500)
300
13,300
40,000
95,000
30,000
165,000
$218,500
54,475
112,000
17,000
183,475
$223,675
(14,475)
(17,000)
13,000
(18,475)
$(5,175)
Percent
To calculate dollar amount of change:
7.7 2011 amounts – 2010 amounts = dollar
56.0
amount of increase or (decrease)
(30.0)
8.1
33.1
(26.6)
(15.2)
76.5
(10.1)
(2.3)
$9,000
17,000
26,000
11,300
16,500
27,800
(2,300)
500
(1,800)
(20.4)
3.0
(6.5)
70,000
32,000
102,000
128,000
79,100
34,175
113,275
141,075
(9,100)
(2,175)
(11,275)
(13,075)
(11.5)
(6.4)
(10.0)
(9.3)
65,000
25,500
90,500
$218,500
54,000
28,600
82,600
$223,675
11,000
(3,100)
7,900
(5,175)
20.4
(10.8)
9.6
(2.3)
Copyright © Texas Education Agency, 2014. All rights reserved.
To calculate percent change:
dollar amount of change/dollar
amount of 2010 (previous
amount)
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ABC Corporation
Comparative Income Statement
For the Year Ended December 31, 20-Revenue
Gross Sales
Less: Sales Discounts
Net Sales
Increase (Decrease)
To calculate dollar amount of change:
Percent
2011 amounts – 2010 amounts = dollar
6.4
(14.0)
amount of increase or (decrease)
7.3
2011
$531,000
18,500
512,500
2010
499,050
21,500
477,550
Amount
31,950
(3,000)
34,950
Cost of Goods Sold
Merchandise Inventory, Jan. 1
Net Purchases
Goods Available for Sale
Less: Merch. Inventory, Dec. 31
157,000
45,000
202,000
53,000
136,265
57,000
193,265
27,045
20,735
(12,000)
8,735
25,955
15.2
(21.1)
4.5
96.0
Cost of Goods Sold
Gross Margin
149,000
363,500
166,220
311,330
(17,220)
52,170
(10.4)
16.8
Operating Expenses
Salaries
Rent
Advertising
Total Operating Expenses
Income before Taxes
Income Tax
Net Income
147,000
5,200
9,800
162,000
201,500
26,500
175,000
143,500
4,800
8,700
157,000
154,330
20,065
134,265
3,500
400
1,100
5,000
47,170
6,435
40,735
2.4
8.3
12.6
3.2
30.6
32.1
30.3
Copyright © Texas Education Agency, 2014. All rights reserved.
To calculate percent change:
dollar amount of
change/dollar amount of 2010
(previous amount)
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EXPECTATIONS
 For example, if management expected Net Income to
increase by 20% and it only increased 10%,
management will need to look at whether Sales could
have decreased or Expenses could have increased.
 For example, if Accounts Receivable decreased by 30%
from one year to the next, this could mean that either
the existing credit accounts are being paid off by the
customers, or new customers could be paying in cash as
opposed to credit.
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•
Assume a company’s change in Accounts
Receivable over five years is as follows:
To make the graph, create a
spreadsheet with the years examined
and the dollar amount of the changes.
Graphing can visually show trends of
increases and decreases in accounts
over time.
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9
Also called common-size analysis
Amounts are shown as a percentage
Amounts not necessarily compared over time
to the same accounts, as in horizontal or
trend analysis, but different amounts are
compared to a common total on the same
financial statement
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Calculated by dividing the individual
amount by a base amount, then multiplying
by 100. (examples on the next slide)
On the Balance Sheet, Total Assets, Total
Liabilities, or Total Stockholders’ Equity are
typically used as the base amounts.
On the Income Statement, Total Sales is
typically the base amount.
Copyright © Texas Education Agency, 2014. All rights reserved.
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ABC Corporation
Balance Sheet
December 31, 20—
Assets
Current Assets:
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Total Current Assets
Property, Plant, and Equipment:
Land
Buildings
Equipment
Total Property, Plant, and Equipment
Total Assets
Liabilities and Stockholder’s Equity
Current Liabilities
Accounts Payable
Salaries Payable
Total Current Liabilities
$ 7,000
39,000
3,500
4,000
$53,500
3.2%
17.9
1.6
1.8
24.5
40,000
95,000
30,000
165,000
18.3
43.5
13.7
75.5
$218,500
100.0%
$9,000
17,000
26,000
4.1%
7.8
11.9
Long-Term Liabilities
Mortgage Payable
70,000
32.0
Bonds Payable
32,000
14.6
Total Long-Term Liabilities
102,000
46.7
Total Liabilities
128,000
58.6
Stockholder’s Equity
Capital Stock
65,000
29.7
Retained Earnings
25,500
11.7
Total Stockholder’s Equity
90,500
41.4
Total Liabilities and Stockholder’s Equity
$218,500
100.0%
Copyright © Texas Education Agency, 2014. All rights reserved.
Each of the items on the
Balance Sheet is divided by a
total.
The Asset section is divided by
Total Assets.
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ABC Corporation
Income Statement
For the Year Ended December 31, 20-Revenue
Sales
Less: Sales Discounts
Net Sales
Cost of Goods Sold
Merchandise Inventory, Jan. 1
Net Purchases
Goods Available for Sale
Less: Merchandise Inventory, Dec. 31
Cost of Goods Sold
Gross Margin
Operating Expenses
Salaries
Rent
Advertising
Total Operating Expenses
Income before Taxes
Income Tax
Net Income
$531,000
18,500
512,500
%
103.6
3.6
100.0%
157,000
45,000
202,000
53,000
149,000
363,500
30.6
8.8
39.4
10.3
29.1
70.9
147,000
5,200
9,800
162,000
201,500
26,500
$175,000
28.7
1.0
1.9
31.6
39.3
5.2
34.1%
Copyright © Texas Education Agency, 2014. All rights reserved.
All accounts on the Income
Statement are divided by a
total, in this case, Net Sales.
** If there are no Sales
Discounts or Sales Returns
and Allowances, each
item can be divided by
Total Sales. **
13
EXPECTATIONS
 For example, if Accounts Receivable represents a large
percent of Total Assets (that percentage would have to
be established by management), management may
want to tighten its credit policies.
 For example, if the Cost of Goods Sold is an especially
high percent of Sales or Revenue, more sales will be
necessary to cover the costs.
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14
Trend Analysis Assignment #1- In pairs, students will select a company to prepare a trend
analysis. Locate a Comparative Balance Sheet and Income Statement for the company. Then
the students will prepare a trend analysis for at least three accounts each from the company’s
balance sheet and three accounts from the income statement. They should also include their
own conclusion for each trend and a recommendation to management based on the
increases or decreases they discover. They may prepare this on a spreadsheet program (or
manually) and will present their findings to the class.
Common-size Analysis Assignment #2- Individually, students will select a company and locate a
Balance Sheet and Income Statement and prepare a vertical analysis of at least three items on
each statement. These items are to be compared to a base amount which will equal 100% so
that students will then create a pie chart for each of the two financial statements. Students will
then make a conclusion and recommendation based on the results of the two pie graphs.
Trend Analysis Graph Assignment # 3- Students will locate the Comparative Balance Sheet or
Comparative Income Statement for a company of their choosing. They will select at least five
accounts for the statement they choose and create graphs for each account showing the
change over the different time periods. They can follow a format similar to the one in the
presentation or a format of their choosing— as long as a spreadsheet displays the changes in
the five accounts across the time periods and five graphs total (one for each spreadsheet).
They should make a statement about each of the analyses in order to make a possible
recommendation to management.
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