The analysis of the company income statements entails

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The analysis of the company income statements entails analyzing the different elements within the income statements of Company ABC. This might be done by examining the horizontal and vertical analysis of the company. Usually this type of analysis is used to understand the cost structure of doing business and the ability of the company to earn profits. Horizontal analysis is a form of trend analysis where by past year figures in the income statements are used to calculate the percentage increase and decrease over a period of time (Penman,2007). For example, in the company ABC since 2013 to 2017 the cost of sales has been increasing gradually. The data show that cost of sales increased by 3.8% (81.1-77.3) since 2013. An increase in the sales say a lot about the company that it is doing well. This clearly is reflecting on its annual profits as increase in sales will directly have a positive impact on the overall profits of the company. Comparing to the other public traded company tesla I can say the company has been doing very but not compared to Tesla which has recorded very high sales since 2013. In fact, the annual profits of the company has been declining annually, although they have recorded high sales this is because of the cost of sales and other operating expenses. There annul profits decrease from 22.7% to 18.9% representing a 3.9 % decrease in annual profits. To sum it up, the company future isn’t looking great as we can see from the income statement and balance sheets. Over the years the annual profits have been decreasing gradually and company’s liabilities have been increasing. This indicates that something needs to be done in order to save the company from bankruptcy.
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Financial Statement Analysis 4 References Epstein, L. (2014). Financial decision making: An introduction to financial reports. San Diego: CA: Bridgepoint Education, Inc. Penman, S. H., & Penman, S. H. (2007). Financial statement analysis and security valuation (p. 476). New York: McGraw-Hill.
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