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    BUS 5110 Discussion Forum Unit 7

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    fisehadekamo02

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    BUS 5110 Discussion Forum Unit 7

    Uploaded by

    fisehadekamo02
    94 views3 pages

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    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    94 views3 pages

    BUS 5110 Discussion Forum Unit 7

    Uploaded by

    fisehadekamo02

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Introduction

    In analyzing the performance of a manufacturing company over the past four years, three key

    line items from both the balance sheet and income statement can provide valuable insights into

    the company's financial health and operational efficiency.

    Balance Sheet Trends

    1. Total Assets: Observing the trend in total assets can indicate the company's growth trajectory

    and capital investment strategies. Increasing total assets may suggest expansion or acquisitions,

    while decreasing assets could signal divestitures or cost-saving measures (Investopedia, n.d.).

    2. Total Liabilities: The trend in total liabilities reflects the company's debt management and

    financial leverage. Increasing liabilities may indicate higher borrowing for growth or liquidity

    issues, while decreasing liabilities could signify debt reduction efforts (Kenton, 2021).

    3. Stockholders' Equity: Changes in stockholders' equity highlight the company's profitability

    and shareholder value creation. A rising trend in equity indicates retained earnings and

    successful investment returns, while a declining trend may raise concerns about profitability or

    shareholder returns (Corporate Finance Institute, n.d.).

    Income Statement Trends

    1. Revenue: Monitoring revenue trends is crucial for assessing the company's sales performance

    and market competitiveness. Increasing revenue over time suggests business growth and demand

    for the company's products/services, while declining revenue could indicate market saturation or

    competitive pressures (Investopedia, n.d.).


    2. Cost of Goods Sold (COGS): Trends in COGS reveal the company's ability to manage

    production costs and maintain profitability. Decreasing COGS relative to revenue indicates

    improved operational efficiency, while increasing COGS may signal rising input costs or

    production inefficiencies (Kenton, 2021).

    3. Net Income: The trend in net income reflects the company's overall profitability and financial

    performance. Consistently increasing net income demonstrates effective cost management and

    revenue growth, while declining net income raises concerns about profitability margins and

    operational challenges (Corporate Finance Institute, n.d.).

    Next Steps in Analysis

    To conduct a thorough analysis of the trends identified, the next steps would involve:

    - Calculating and analyzing relevant financial ratios to assess profitability, liquidity, solvency,

    and efficiency.

    - Comparing the company's performance with industry benchmarks and peer companies to

    identify areas of strength and weakness.

    - Investigating the factors driving the observed trends, such as changes in market conditions,

    competitive landscape, operational strategies, or regulatory environment.

    - Considering qualitative factors like management effectiveness, brand reputation, innovation,

    and strategic initiatives impacting the company's financial performance.

    By combining quantitative analysis with qualitative insights, a comprehensive understanding of

    the manufacturing company's financial trends and performance drivers can be achieved,
    facilitating informed decision-making for stakeholders and strategic planning for the company's

    future.

    References

    Corporate Finance Institute. (n.d.). Stockholders Equity. Retrieved from

    https://corporatefinanceinstitute.com/resources/knowledge/accounting/stockholders-equity/

    Investopedia. (n.d.). Total Assets. Retrieved from

    https://www.investopedia.com/terms/t/totalassets.asp

    Kenton, W. (2021). Cost of Goods Sold – COGS. Retrieved from

    https://www.investopedia.com/terms/c/cogs.asp

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