Assignment #4

Analysis
DuPont Equation Analysis:
1. Profit Margin Equation:
In 2017, 2018 and 2019 the profit margin ratio of Byco Petroleum is higher than the
industry in almost 2 years which means that the company has more profit margin than the
industry.

2. Total Asset Turnover:

In 2017, 2018 and 2019 the total asset turnover ratio of industry is higher than the company
as industry ratios are 1.23, 1.58 and 1.84 on the other hand company ratios are 0.8, 1.3 and
1.5 which means that industry managing its assets better and very effectively than the
company.

3. Equity Multiplier:
The equity multiplier ratio of the year 2017, 2018 and 2019 of company is higher than the
industry which are 18.7, 5.2 and 5.8 and the industry ratios are 3.4, 3.18 and 4.5 which also
mean that industry ratios are increasing after 2018.
Du PONT:
To conclude this, we can say that in year 2017 the Byco petroleum rate of return on equity
is higher than the industry as company rate of return on equity is 23.81 and industry ratio
is 14.11. In 2019 the company rate of return on equity is again higher than the industry
which are 21.07 and 6.01 but in 2019 the rate of return on equity for both company and
industry are decreases and become negative.

Horizontal and Vertical Analysis:

Balance sheet:
➢ Horizontal Analysis:
Horizontal analysis sometimes referred to as trend analysis, is used to identify trends over
a particular number of accounting periods. It can be used with a balance sheet or an income
statement. The horizontal analysis stresses the trend in earnings, assets, and liabilities.
• Assets:
In this case we have taken 2017 as a base year and compared 2018 and 2019 balance
sheets with it. We saw that there is 14% increase in Total assets of Byco Petroleum
in 2018 as compared to 2017 and 13% increase in Total assets of company in 2019
 as compared to 2017 which means that there is increasing trend in Byco Petroleum
company total Assets.
For Petroleum industry we saw that there is 11% increase in Total assets of industry
in 2018 as compared to 2017 and 19% in Total assets of industry in 2019 as
compared to 2017 which also means that the industry has an increasing trend of
assets.
Whereas there is 1% decrease in total assets of the company from 2018 to 2019
which shows 1% decreasing trend and for industry there is 19% increasing total
asset from 2018 to 2019.

• Equity:
In case of Total Equity of Byco Petroleum we saw 304% increase in 2018 as
compared to 2017 and 260%increase in 2019 as compared to 2017, which shows a
huge amount of increasing trend in Byco Petroleum company total equity.
For Petroleum industry we saw 22% increase in 2018 as compared to 2017 and 9%
decrease in 2019 as compared to 2017 which shows that from 2017 to 2018 the
industry has increasing trend but from 2017 to 2019 there is decreasing trend.
Whereas there is 44% decrease in Total equity of company from 2018 to 2019 and
31% decrease in Total equity of industry from 2018 to 2019 which means that there
is decreasing trend and the total equity of both company and industry falls.

• Liabilities:
Moreover, we saw that there is 20% decrease in Total liabilities of Byco Petroleum
company in 2018 as compared to 2017 and 14% increase in total liabilities in 2019
as compared to 2017 which means that from 2017 to 2018 there is decreasing trend
in liabilities and from 2017 to 2019 there is increasing trend in total liabilities of
the company.
For industry there is 15% increase in Total Liabilities of industry in 2018 as
compared to 2018 and 38% increase in total liabilities in 2019 as compared to 2017
which shows an increasing trend in Total Liabilities of the Petroleum industry.
Whereas there is 34% increase from 2018 to 2019 in company total liabilities and
23% increase in total liabilities from 2018 to 2019 of the industry.

➢ Vertical Analysis:
Vertical analysis is a method of financial statement analysis in which each line item
is listed as a percentage of a base figure within the statement.
• Current Assets:
In the year 2017, 2018 and 2019 the total current assets of the company are 18%,
32% and 33% whereas the industry total current assets are 33%, 42% and 44%
 respectively. Which shows the increasing trend of Total Current Assets in company
and industry both.

• Non-Current Assets:
Whereas in 2017, 2018 and 2019 the non-current assets of Byco Petroleum
company are 82%, 67% and 67% respectively, whereas the industry non-current
assets of 2017, 2018 and 2019 are 67%, 58% and 56% which shows that there is
decreasing trend of non-current assets in company and on the other hand there is
also decreasing trend of non-current assets in the industry.

• Non-Current Liabilities:
In the year 2017, 2018 and 2019 the non-current liabilities of the company are 31%,
23% and 23% whereas the industry non-current liabilities are 19%, 14% and 12%
which shows that there is decreasing trend of non-current liabilities in both the
company and the industry.

• Current Liabilities:
The current liabilities of the company in the year 2017, 2018 and 2019 are 51%,
58% and 60% whereas for the industry the liabilities are 43%, 50% and 60% which
shows the increasing trend of current liabilities in company as well as in the
industry.

• Equity:
In the year 2017, 2018 and 2019 the total equity of the Byco Petroleum company
is 5%, 19% and 17% whereas for the industry are 29%, 31% and 22% which shows
that from 2017 to 2018 the equity is increases in the company but from 2018 to
2019 there is decreasing trend in the company and the same case is with the
industry.

Profit and Loss

➢ Horizontal Analysis:
Horizontal analysis is used in the review of a company's financial statements over
multiple periods. It is usually depicted as percentage growth over the same line item in
the base year. Horizontal analysis allows financial statement users to easily spot trends
and growth patterns.
• Net Sales:
In this case we have taken 2017 as the base year and have compared 2018- and 2019-
income statements with it. We saw that there is 88% increase in 2018 as compared to
2017 and 123% increase in the net sales of the company in 2019 as compared to the
2017 which shows the increasing trend in net sales of the company. Whereas for industry
there is 43% increase in 2018 as compared to the 2017 and 77% increase in 2019 as
compared to the 2017 which also shows that there is increasing trend of net sales in the
industry.
Furthermore, there is 35% increase in net sales from 2018 to 2019 of the Byco Petroleum
company and 34% increase in the industry from 2018 to 2019 which means that both
are showing increasing trend but company increasing trend is high than industry.

• Cost of Sales:
There is 85% increase in the cost of sales of Byco Petroleum company in 2018 as
compared to 2017 and 131% increase in the year 2019 as compared to the 2017 which
shows that there is increasing trend in the cost of sales of the company.
The industry cost of sale of 2018 is increases from 48% as compared to the 2017 and
90% increases as compared to the 2017 which also shows that there is increasing trend
in the cost of sale of industry
Moreover, there is 46% increase in the cost of sale of company from 2018 to 2019 and
42% increase in the industry from 2018 to 2019 which shows both are increasing but
company trend of increasing cost of sale is higher.

• Gross Profit:
We saw that there is 148% increase in the gross profit of the Byco Petroleum company
in 2018 as compared to the 2017 and 47% decrease in the 2019 as compared to the 2017
which means that from 2017 to 2018 there is increasing trend in gross profit and from
2017 to 2019 there is decreasing trend in the gross profit.
For the industry there is 36% decrease in the gross profit in 2018 as compared to 2017
and there is decrease in 2019 as the 2019 value is -47% which shows the decreasing
trend of gross profit in industry also.
Furthermore, there is also decreasing trend from 2018 to 2019 in both the company as
well as in the industry.

• Profit from Operations:

Furthermore, we saw that there is 196% increase in the profit from operations in
2018 as compared to 2017 of the company and 70% decrease in the profit in 2019
as compared to 2017 which shows increasing trend in the profit from operations in
company. Whereas there is 31% decrease in the profit from operations of the
company in 2018 as compared to 2017 and in 2019 the value becomes negative
which is -59% which also shows decreasing trend in industry.
And the overall trend for both industry and company also decreasing from 2018 t0
2019.
• Profit before Tax:
For the profit before tax there is 1465% increase in 2018 of the Byco Petroleum
company as compared to 2017 and 552% increase in the 2019 as compared to the
2017 which shows the higher amount of increasing trend in profit before tax.
Moreover, there is 67% decrease in the 2018 as compared to 2017 of the industry
and in 2019 the value becomes negative which is -198% which shows that there is
decreasing trend in the profit before tax of the industry.
Furthermore, from 2018 to 2019 there is decreasing trend in the profit before tax in
both the company and industry as well.

• Profit after Tax:

There is 258% increase in the year 2018 of the company for profit after tax and in
2019 it becomes negative -120% which shows that there is increase in the profit
after tax of the company from 2017 to 2018 but from 2017 to 2019 there is
decreasing trend. For the industry there is 48% decrease in 2018 as compared to
2017 and in 2019 it becomes negative -197% which means the industry face
decreasing trend in profit after tax.

➢ Vertical Analysis:
Vertical analysis is the proportional analysis of a financial statement, where each
line item on a financial statement is listed as a percentage of another item.
• Cost of Sale:
In 2017, 2018 and 2019 the cost o sales of Byco Petroleum company are -96%, -
94% and -99% which shows that there is decreasing trend in the company cost of
sales. For the industry, the cost of sales for the 2017, 2018 and 2019 are -94%, -
98% and -101% which also shows the decreasing trend in the industry cost of sales
because it has negative values in all years.

• Gross Profit:
Whereas in 2017, 2018 and 2019 the gross profit of Byco Petroleum company is
4%, 6% and 1% and for the industry the gross profit is 6%, 2% and -1%. Which
means that company has increasing trend in gross profit as compared to the industry
because industry has decreasing trend in last two years.

• Profit of Operations:
Furthermore, in 2017, 2018 and 2019 the profit from operations is 3%, 5% and 0%
and for the industry is 5%, 2% and -2% which shows that company has decreasing
trend in profit of operations and industry also has decreasing trend but lower rate
as compared to company.
• Profit Before Tax:
Also in 2017, 2018 and 2019 the Profit before tax for the company are 0%, 3% and
-1% and for the industry are 4%, 1% and -4% which means that company has
increases from 2017 to 2018 but there is decreasing trend from 2018 to 2019 but in
industry there is increasing trend from 2107 to 2018 but there is decreasing trend
from 2018 to 2019.

• Profit After Tax:

The profit after tax for the year 2017, 2108 and 2019 are 2%, 3% and -1% of the
company and for the industry are 3%, 1% and -4% which shows that increasing
trend of profit after tax of the company from 2017 to 2018 and then it starts
decreasing. And for the industry there is decreasing trend in all years.