Horizontal Analysis Of Jim's Auto Body And Angels Auto Body

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Analyze the financial statements of Jim's Auto Body and Angel's Auto Body by performing horizontal and vertical analyses on their income statements and balance sheets for the years 2014 and 2015. Based on your analysis, interpret the financial health, growth trends, and operational efficiency of both companies. Include calculations of percentage changes over the years, identify significant trends, and discuss what these financial metrics suggest about each company's performance and stability. Your report should address differences in revenue growth, expense management, asset utilization, and liability management, providing a comparative perspective to evaluate their respective financial standings during the period.

Paper For Above instruction

The financial performance of companies is often assessed through comprehensive analysis of their financial statements, notably using horizontal and vertical analysis techniques. For Jim's Auto Body and Angel's Auto Body, examining their income statements and balance sheets from 2014 to 2015 reveals valuable insights into their operational trends, financial health, and growth potential.

Horizontal Analysis: Revenue and Expense Trends

Starting with revenue growth, Jim's Auto Body experienced an increase in service revenue from $28,000 in 2014 to $32,000 in 2015, representing an approximate 14.29% increase ((32,000 - 28,000) / 28,000 * 100). Conversely, Angel's Auto Body's revenue surged from $189,000 to $332,000, reflecting a remarkable growth of about 75.13%. Such a substantial increase indicates significant expansion in Angel's Auto Body’s client base or service offerings, perhaps driven by improved marketing or market demand.

Expenses for Jim's Auto Body rose marginally from $7,000 to $7,870, a 12.43% increase, maintaining operational efficiency relative to revenue growth. In contrast, Angel's Auto Body's expenses soared from $59,555 to $202,000, an approximately 238.76% increase, mainly driven by higher cost structures such as supplies and salaries. Although expenses increased substantially, they were proportionate to revenue growth, suggesting the company maintained relative expense control but faced increased operational costs.

Vertical Analysis: Expense and Asset Composition

Vertical analysis provides insights into relative proportions of financial statement items. Jim's Auto Body's total revenue accounts for 100%, with expenses constituting about 25% (7,000/28,000), indicating a healthy gross margin and efficient cost management. Angel's Auto Body, with revenue of $189,000 in 2014 and expenses of $59,555, spent approximately 31.54% of revenue on expenses, which is acceptable but indicates slightly lower profitability margins compared to Jim's.

On the asset side, Jim’s assets increased from $180,000 in 2014 to $243,650 in 2015, a 35.36% growth. Key assets like cash increased from $101,800 to $145,000, enhancing liquidity. Angel's assets more than doubled, from $180,000 to $530,800, a 195.44% increase, primarily due to significant increases in accounts receivable and equipment, implying aggressive growth and investment.

Liability and Equity Trends

Jim's liabilities increased from $11,000 to $26,500, largely due to increased accounts payable and salaries payable, but its stockholders' equity also grew from $169,000 to $217,150, indicating retained earnings accumulation and reliance on retained earnings to finance growth. Angel's liabilities similarly increased, reflecting expansion financing, but the company's equity grew proportionally from $169,000 to $328,800, supporting its aggressive expansion.

Performance and Stability Assessment

Angel's Auto Body demonstrates dynamic growth but with higher expense ratios, which could threaten profitability if not managed carefully. Its high asset growth suggests strategic investments, possibly in equipment and receivables, to support future revenue. Jim’s Auto Body exhibits steady revenue and expense growth, maintaining operational efficiency and profit margins, implying a stable, mature operation.

Conclusion

Overall, Angel's Auto Body shows impressive revenue growth indicative of expanding market share but faces challenges managing rising expenses. Jim's Auto Body remains relatively stable with consistent margins, suggesting effective cost control and sustainable growth. Both companies' financials highlight different stages of business maturity, with Angel's exhibiting rapid expansion and Jim's maintaining steady performance. Continued monitoring of expense management, asset efficiency, and liability control will be crucial for their ongoing financial health.

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