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Financial Statement Analysis - Essay Example
Author : ubaldogreenfeld
Finance & Accounting
Pages 15 (3765 words)
Profitability Analysis – Sainsbury PLC v/s Tesco PLC Introduction The preparation and developments of financial statements are carried out in order to provide a true picture of the company regarding its financial performance and position. What company achieved, what company lost and what company maintained in financial aspects, all are presented under financial statements of a company…
For this reason, the actual presentation of financial statements with the absolute figures becomes meaningless as it does not provide a rational basis for comparing with the competitor or with the industry. The industry and competitor might have several differences due to which it is not practically justified that the analysis between the two should be made. For instance, if a company has revenues of $5 million and one of its competitors has the revenues of $500,000 then on the basis of these absolute figures, there is no comparison between the two companies. However, if the growth in revenue of the former company is, let’s say 6% and the latter company has growth in revenues of around 8%, then there is a rationale of analyzing both the companies as the same footing for comparison is available now. In short, in the absence of reasonable commonalities between the financial aspects of the two companies, the comparison of the two companies turns out to be meaningless. The best way to make a comparison in financial aspect between the two companies is to undertake financial ratio analysis. This analysis provides a common platform for the companies so that their performance can be compared on reasonable basis. ...