Comparative Financial Statement Analysis

Comparative Financial Statement Analysis

Q1-3
Comparative financial statement analysis (Horizontal analysis)

Eastman Corporation
Income Statement ($ millions)
For Years Ended December 31

| Year 6 | | Year 5 | | Year 4 | | Cumulative Amount | | Average Annual Amount |
| | | | | | | | | |
Net sales | 6,880 | | 3,490 | | 2,860 | | 13,230 | | 4,410 |
COGS | 3,210 | | 2,810 | | 1,810 | | 7,830 | | 2,610 |
Gross profit | 3,670 | | 680 | | 1,050 | | 5,400 | | 1,800 |
Operating expenses | 930 | | 465 | | 945 | | 2,340 | | 780 |
Income before taxes | 2,740 | | 215 | | 105 | | 3,060 | | 1,020 |
Net income | 1,485 | | 145 | | 58 | | 1,688 | | 563 |

| Year 5 - 6 | | Year 4 - 5 |
| Change | | % Change | | Change | | % Change |
| | | | | | | |
Net sales | 3,390 | | 97.13% | | 630 | | 22.03% |
COGS | 400 | | 11.46% | | 1,000 | | 34.97% |
Gross profit | 2,990 | | 85.67% | | -370 | | -12.94% |
Operating expenses | 465 | | 13.32% | | -480 | | -16.78% |
Income before taxes | 2,525 | | 72.35% | | 110 | | 3.85% |
Net income | 1,340 | | 38.40% | | 87 | | 3.04% |

Based on this year-to-year comparison over years 4 to 6 (trend analysis) of Eastman's performance, we found that:

  1. Net sales
      a. Both amount and rate kept increasing
      b. Both amount and increasing rate of year 6 were much larger than those of year 5
      c. Net sales substantially increased (97%) in year 6 in comparison to year 5 (22%)
  2. COGS
      d. COGS Unavoidably increased with sales turnover
      e. But, their increasing rates kept reducing (Year 5: 35%, Year 6:12%)
      f. Eastman could well control and remarkably reduce the unit costs of goods sold
  3. Gross profit
      g. In year 5, as the increasing rate of COGS (35%) is much larger than that of net sales (22%), this resulted in decrease in gross profit (-13%)
      h. In the contrary, in year 6, the increasing rate of net sales (97%) is much larger...

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