Comparative Financial Statements Examples

Explore practical examples of year-over-year comparison of financial statements to enhance financial analysis.
By Jamie

Understanding Year-over-Year Comparison of Financial Statements

Year-over-year (YoY) comparisons of financial statements are essential tools for analyzing a company’s financial performance over time. By comparing figures from one year to the next, stakeholders can identify trends, assess growth, and make informed decisions. Below are three practical examples that illustrate this concept in various contexts.

Example 1: Retail Company Revenue Analysis

In this example, we will analyze the revenue of a fictional retail company, XYZ Retail, over two consecutive years to understand its growth trajectory.

XYZ Retail reported the following revenues:

  • 2022 Revenue: $2,000,000
  • 2023 Revenue: $2,500,000

To calculate the YoY growth rate, we use the formula:

[
ext{YoY Growth Rate} = \frac{\text{Revenue}_{2023} - \text{Revenue}_{2022}}{\text{Revenue}_{2022}} \times 100
]

Substituting the values gives us:

[
ext{YoY Growth Rate} = \frac{2,500,000 - 2,000,000}{2,000,000} \times 100 = 25\%
]

This indicates that XYZ Retail experienced a 25% increase in revenue from 2022 to 2023, which can be attributed to several factors such as expanded product lines and enhanced marketing efforts.

Notes:

  • This example emphasizes the importance of revenue growth in assessing a company’s operational efficiency.
  • Variations can include seasonal adjustments for more accurate comparisons.

Example 2: Tech Company Expense Management

This example focuses on the operating expenses of a fictional tech firm, ABC Technologies, highlighting how effective cost management impacts profitability.

ABC Technologies reported the following operating expenses:

  • 2022 Operating Expenses: $1,200,000
  • 2023 Operating Expenses: $1,000,000

Calculating the YoY change in operating expenses:

[
ext{YoY Change} = \text{Operating Expenses}_{2023} - \text{Operating Expenses}_{2022}
]

Substituting in the numbers:

[
ext{YoY Change} = 1,000,000 - 1,200,000 = -200,000
]

This negative value indicates a decrease of $200,000, or approximately 16.67%. This decline in expenses could suggest that ABC Technologies implemented more efficient operational strategies, leading to improved profit margins.

Notes:

  • Understanding expense management is crucial for assessing a company’s financial health.
  • Businesses may also consider analyzing specific expense categories for deeper insights.

Example 3: Service Industry Profit Margin Evaluation

In this case, we examine the net profit margin of a fictional service company, Service Pros, over two years to evaluate profitability trends.

Service Pros reported the following figures:

  • 2022 Net Income: $800,000
  • 2023 Net Income: $1,000,000
  • 2022 Total Revenue: $4,000,000
  • 2023 Total Revenue: $5,000,000

First, we compute the net profit margin for both years using the formula:

[
ext{Net Profit Margin} = \frac{\text{Net Income}}{\text{Total Revenue}} \times 100
]

Calculating for each year:

  • 2022: \[ \frac{800,000}{4,000,000} \times 100 = 20\% \]
  • 2023: \[ \frac{1,000,000}{5,000,000} \times 100 = 20\% \]

Although Service Pros increased its net income, its net profit margin remained constant at 20%. This stability suggests that while the company is growing, its profitability relative to revenue is consistent, which can be an attractive factor for investors.

Notes:

  • Monitoring profit margins is crucial for long-term sustainability.
  • Companies may also compare profit margins against industry benchmarks for comprehensive analysis.