Complete a horizontal analysis of the following balance sheet:...

Question

Complete a horizontal analysis of the following balance sheet:

Balance sheet for horizontal analysis comparing 20X2 and 20X1 financial data.

Accepted Answer

Alright. So let's go ahead and complete this horizontal analysis for a balance sheet. It's going to be pretty much like we did above with the income statement accounts, but now we're using balance sheet accounts. So I hope you guys did this in advance to get a little extra practice. If not, you might as well pause the video and do it now because I'm gonna go kind of quickly here. I did all of the calculations ahead of time, just to save us time. There's gonna be a bunch of calculations here. So remember, we got a label our new and our old. Remember our percentage change formulas, it's gonna be the new minus the old divided by the old. So the new year is 20x2, the old year is 20x1, and then the dollar amount of the change, well that's the new minus the old right here, right? New minus old and then we're going to divide that by the old to get the percentage change. Okay. So we're going to go account by account. Like I said, I did these numbers in advance. So let's do the first one. I'll talk in a little more detail. So first, we got to do new minus old. So 262-1 minuteus 18514, well that gives us a dollar change of 7,697. So that tells us that cash increased by $$7,697 from 1 year to the next. And then we take that, the 7697 and we divide it by the old number which was 18514 to get our percentage change. 7697 divided by 18514, well, that's going to give us as a percentage 41 point 6%, right? So you'll get a decimal on your calculator, 0.416 and then you got to move it over, to 41.6. So I'm gonna be rounding to just 1 decimal here on the percentages. So I'm gonna start going down. We're gonna go a little faster now. I'll still say what I'm doing. So we're gonna do the new minus the old for accounts receivable, 15912 minus 18530. And notice, this time we get a negative number. 2 618, right? Because last year's balance was higher than this year's balance. So we get a negative number, but we divide that negative number still just the same way by the old number, 18530. So negative 2618 over 18530, that gives us a negative 14.1%. Okay? So negative 14.1 percent that time. Let's keep going. This one's gonna be negative as well, right? The inventory is a lower balance in the 2nd year than the 1st year. So let's check it out. We're gonna get a dollar amount of the change, new minus old of a negative 9604, right? Negative 9604 and our percentage change dividing that by the old number, 16028, that's gonna give us a negative 59.9%, right? So there we go. That's that tells us that the inventory has decreased almost 60% from 1 year to the previous year. Alright, let's keep going here. PPE, so PPE 23160-1740 that gives us 6120, and then we divide that by the old and we get 30 5.9%. Cool? Let's keep going. Total assets, so we can do this on the total basis as well, right? We're going to see how the total assets change year over year, and we'll see that total assets has increased by 15.95 as a dollar amount and then we take that dollar change and divide it by the whole balance to get 2.3% change, right? There we go. We've done all of our assets including total assets. Let's go ahead and do our liabilities and stockholders' equity accounts. So accounts payable, we can see it decreased, right? We had a lower balance in 20x2 than 20x1, so that's gonna give us a negative number here and it's gonna be negative 4,197. We divide that by the old balance of 13,759 and we get a decrease of 30.5 percent, alright? So that's a decrease of 30.5. Let's keep going. Accrued expenses, this one stayed almost pretty stable here, but we saw that there was a decrease of a 124$$, 6117-6 241 and that is a 2% decrease, so negative 2%. Let's keep going. How about long term debt? So went up by 5,000, right? 30,000 minus 25,000, that's a 5,000 increase in that liability. And when we take that 5,000 divided by 25,000, we get a 20% increase in long term debt. How about common stock? Look at this one. This is pretty common for this to happen actually, where the common stock doesn't change. It's not like every year the company is going to be issuing new common stock, so this one is generally one that might be pretty stable. So notice that it's the same year over year, there was no change in this account, So there's no percentage change in this account as well. Okay? 0 divided by 1,000 is 0. Cool. Same thing with APIC. APIC is another equity account related to that common stock. Additional paid in capital, we'll talk about that more in the equity section, but it's another one that generally stays pretty stable unless we're issuing new stock. So again, we had no change there. Right? No percentage change, no dollar change. Alright. Finally, oh, well, we got 2 more. So let's do retained earnings. So our retained earnings went up since last year, that means we had more income than we paid in dividends. Cool. So there we go, we had a $916 increase in our retained earnings which is 17.9% when we divide that, let me get out of the way here just to make sure you've seen all the numbers. So yeah, retained earnings went up 17.9%. And finally, let's do the last one here and notice that this is going to be the same as our change in total assets, right? Because these numbers are the same. Assets equal liabilities plus equity. So we're going to have the same changes here as well, right? So here we go. We've got 1595 and a 2.3% change. Cool? So there is our horizontal analysis for the balance sheet. You can see that these can be kind of timely, time consuming. But if you start learning about excel, you can actually do all of this in a really quick fashion. Either way, this is how we do our horizontal analysis and then we can use this information to make better judgments with this with this financial statement. Cool? Alright. Let's go ahead and move on to our next video.

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