Financial Statement Analysis: Comparative Income Statement Objectives
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Questions and Answers

What is the main objective of a Comparative Income Statement?

  • Analyze and evaluate the operating results of a business (correct)
  • List all expenses incurred by the business
  • Facilitate the management of cash flow
  • Predict future sales accurately

    • How can an increase in sales affect profitability according to the text?

  • Guarantee improved operational efficiency
  • Always lead to increased profits
  • Automatically reduce costs
  • May not necessarily increase profits (correct)

    • In the context of a Comparative Income Statement, what should be studied in the first step?

  • Net profit
  • Taxes paid
  • Gross profit (correct)
  • Operating expenses

    • Which type of expenses should be deducted from gross profit to find operating profits?

    <p>Cost of goods sold</p> Signup and view all the answers

    What will result in an increase in operating profit according to the text?

    <p>Increase in sales and efficient management of expenses</p> Signup and view all the answers

    What does a Comparative Income Statement aim to help management with?

    <p>Forecasting future profits</p> Signup and view all the answers

    What does an interpreter look at to check the profitability of a concern?

    <p>Increase or decrease in retained earnings</p> Signup and view all the answers

    According to the guidelines for interpreting a Common Size Income Statement, what should be studied first?

    <p>Gross profit ratio</p> Signup and view all the answers

    What can be shown as percentages of sales in a Common Size Income Statement?

    <p>Items in the income statement</p> Signup and view all the answers

    How can the profitability improve according to Common Size Income Statement guidelines?

    <p>By having an increase in sales more than cost of goods sold</p> Signup and view all the answers

    What is one significance of showing items in the income statement as percentages of sales?

    <p>Evaluating operating activities of the enterprise</p> Signup and view all the answers

    Which statement should be analyzed first according to the guidelines for interpretation of a Common Size Income Statement?

    <p>Gross profit ratio</p> Signup and view all the answers

    What is the total Revenue for the year 2014 based on the provided information?

    <p>₹22,40,000</p> Signup and view all the answers

    What was the Profit Before Tax for the year 2013?

    <p>₹2,70,000</p> Signup and view all the answers

    How is Working Capital calculated?

    <p>Current Asset - Current liabilities</p> Signup and view all the answers

    What financial aspect can be inferred from an increase in Working Capital?

    <p>Improvement in current financial position</p> Signup and view all the answers

    How should an increase in fixed assets be financed?

    <p>By issuing long-term securities or fresh share capital</p> Signup and view all the answers

    In the Balance Sheet analysis, what does an increase in long-term loans indicate?

    <p>Potential expansion or investment in fixed assets</p> Signup and view all the answers

    Why has the gross profit ratio improved in 2014 according to the text?

    <p>The company reduced the cost of goods sold.</p> Signup and view all the answers

    What action by the company helped increase the operating profit according to the text?

    <p>Reducing operational expenses.</p> Signup and view all the answers

    How much did the net profit ratio increase from 2013 to 2014 according to the text?

    <p>Increased by 9.82%.</p> Signup and view all the answers

    What helped improve the profitability of the company in 2014 according to the text?

    <p>Control and reduction of operating costs.</p> Signup and view all the answers

    What does common-size income statement analysis involve?

    <p>Presenting each item as a percentage of a common figure.</p> Signup and view all the answers

    Why is percentage analysis used in balance sheets according to the text?

    <p>To facilitate easy comparison of items.</p> Signup and view all the answers

    What does the trend analysis reveal about fixed assets from 2016 to 2019?

    <p>The proportion of investment in fixed assets is decreasing.</p> Signup and view all the answers

    According to the trend analysis, what can be inferred about the investment in current assets?

    <p>It is increasing year after year.</p> Signup and view all the answers

    How have the total assets changed from 2016 to 2019 according to the trend analysis?

    <p>They have been increasing every year.</p> Signup and view all the answers

    What conclusion can be drawn about the asset structure based on the trend analysis?

    <p>It is becoming less diversified.</p> Signup and view all the answers

    Which trend percentage indicates a decrease relative to the base year of 2016?

    <p>140% total assets for 2018</p> Signup and view all the answers

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