Corporate 

Financial Reporting

Session‐ 10 : IIMC‐PGP‐2018
Financial Statement Analysis: 
Horizontal & Trend analysis and Common Size Statements 

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 Learning Goals for Sessions on FSA
Standards of Comparison
Tools:
1. Horizontal Analysis and Trend Analysis
2. Vertical Analysis and Common size statements
3. Ratio Analysis – Calculation and Interpretation
– Liquidity and Cash Flow Ratios
– Efficiency or Turnover Ratios
– Leverage Ratios
– Profitability and Cost Structure Ratios
• DuPont Analysis of ROE 
– Market Ratios
• Assignments

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 Horizontal Analysis
• Purpose - To determine increase or decrease that has taken place.

– Computes changes from the previous year to the current year in both
absolute dollar amounts and percentages (The base year is the first year 
considered) 

• Commonly applied to the balance sheet and income statement.

Amount of Change since base year

= Current Year Amount – Base Year Amount

 Amount of Change 
Percentage Change  100   
 Base Year Amount 

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 Horizontal Analysis: Income Statement

Percentage 
change
from one year 
to
the next year

Dollar change 
from 
year to year
HINDALCO 
Change 
Income Statement ( Multi step, classified as per function) for the year  2017‐ Growth 
ended 31st March  2017 2016_R 2016 % CS 2016 CS 2017
Net Sales 38,945.65  36,317.43  2,628.2  7.2  100.0  100.0 
Less: COGS  (Note 1) ‐33,419.88  ‐32,399.16  1,020.7  3.2  ‐85.8  ‐89.2 
Gross Profit 5,525.77  3,918.27  1,607.5  41.0  14.2  10.8 
Other Operating Revenues 437.47  395.62  41.9  10.6  1.1  1.1 
Operating Expenses (Note 2) ‐2,577.69  ‐2,249.84  327.8  14.6  ‐6.6  ‐6.2 
Operating Profit  3,385.55  2,064.05  1,321.5  64.0  8.7  5.7 
Non‐Operating items:  Other Income   1,005.17  978.92  26.3  2.7  2.6  2.7 
EBIT 4,390.72  3,042.97  1,347.7  44.3  11.3  8.4 
Less: Finance Costs   ‐2,322.87  ‐2,390.14  67.3  2.8  ‐6.0  ‐6.6 
Profit Before Exceptional Items and Tax 2,067.85  652.83  1,415.0  216.8  5.3  1.8 
Exceptional Items(Net) 84.89  ‐ 84.9  0.2  ‐
EBT or PBT ( Profit before Tax ) 2,152.74  652.83  1,499.9  229.8  5.5  1.8 
Tax Expenses (Current Tax + Deferred Tax) ‐596.35  ‐98.92  497.4  502.9  ‐1.5  ‐0.3 
PAT 1,556.39  553.91  1,002.5  181.0  4.0  1.5  4
 HINDALCO : Classified BALANCE SHEET
ASSETS 2017 2016 Change Gr %
Non-Current Assets
Property, Plant and Equipment 2 34,017.71 32,096.38 1,921.33 5.99
Capital Work in Progress 711.54 3,078.41 ‐2,366.87 ‐76.89
Investment Property 3 9.26 9.48 ‐0.22 ‐2.32
Intangible Assets 4 357.31 146.98 210.33 143.10
Intangible Assets Under Development 0.01 0.33 ‐0.32 ‐96.97
Financial Assets
Investment in Subsidiaries 5 14,122.49 14,079.17 43.32 0.31
Investments in Joint Ventures and Associates 6 1,971.30 2,524.31 ‐553.01 ‐21.91
Other Investments 7A 4,385.38 3,117.36 1,268.02 40.68
Loans 8A 50.53 36.89 13.64 36.97
Other Financial Assets 9A 382.84 266.16 116.68 43.84
Other Non-current Assets 10A 724.02 728.16 ‐4.14 ‐0.57
56,732.39 56,083.63 648.76 1.16
Current Assets
Inventories 11 9,268.03 8,405.49 862.54 10.26
Financial Assets
Other Investments 7B 8,852.78 7,590.42 1,262.36 16.63
Trade Receivables 12 1,872.83 2,014.76 ‐141.93 ‐7.04
Cash and Cash Equivalents 13 4,307.42 222.63 4,084.79 1834.79
Bank Balances other than Cash and Cash Equivalents 14 27.76 103.84 ‐76.08 ‐73.27
Loans 8B 179.82 32.27 147.55 457.24
Other Financial Assets 9B 1,114.44 1,405.72 ‐291.28 ‐20.72
Other Current Assets 10B 3,885.17 4,485.17 ‐600.00 ‐13.38
29,508.25 24,260.30 5,247.95 21.63
Non-current Assets or Disposal Groups Classified as Held
For Sale or as Held For Distribution to Owners 15A 81.51 97.59 ‐16.08 ‐16.48
29,589.76 24,357.89 5,231.87 21.48
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86,322.15 80,441.52 5,880.63 7.31
 HINDALCO : Classified BALANCE SHEET continued
EQUITY AND LIABILITIES 2017 2016 Change Gr %
Equity
Equity Share Capital 16 222.72 204.89 17.83 8.70
Other Equity 17 47,109.84 41,954.59 5,155.25 12.29
47,332.56 42,159.48 5,173.08 12.27
Liabilities
Non-Current Liabilities
Financial Liabilities
Borrowings 18A 18,391.95 23,904.29 ‐5,512.34 ‐23.06
Trade Payables 19A 0.44 2.1 ‐1.66 ‐79.05
Other Financial Liabilities 20A 476.88 506.68 ‐29.80 ‐5.88
Provision 21A 453.32 409.35 43.97 10.74
Deferred Tax Liabilities (Net) 22 1,231.67 1,149.06 82.61 7.19
Other Non-current Liabilities 23A 10.66 1.47 9.19 625.17
20,564.92 25,972.95 ‐5,408.03 ‐20.82
Current liabilities
Financial Liabilities
Borrowings 18B 4,229.98 4,540.49 ‐310.51 ‐6.84
Trade Payables 19B 5,285.11 3,944.52 1,340.59 33.99
Other Current Financial Liabilities 20B 7,146.87 2,008.51 5,138.36 255.83
Provisions 21B 276.95 221.66 55.29 24.94
Other Current Liabilities 23B 697.12 634.66 62.46 9.84
Income Tax Liabilities (Net) 24 788.59 959.09 ‐170.50 ‐17.78
18,424.62 12,308.93 6,115.69 49.68
Liabilities Associated with Non-current Assets or Disposal
Group 15B
Classified as Held For Sale or as Held For Distribution to
Owners 0.05 0.16 ‐0.11 ‐68.75
18,424.67 12,309.09 6,115.58 49.68
38,989.59 38,282.04 707.55 1.856
86,322.15 80,441.52 5,880.63 7.31
 Trend Analysis
A type of horizontal analysis in which percentage changes are calculated 
for several successive years instead of for just two years
• Important because it may point to basic changes in the nature of a 
business
• Uses an index number to show changes in related items over a period of 
time
• Current Results in relation to Base year: 
Index  =   100   *   Current Year Amount
Base Year amount
HINDALCO
 (Rupees  in crores) 2017 2016R 2015 2014 2013 2012 2011 2010 2009 2008 2007
Net Sales   38,946   36,317   34,525   27,851   26,057   26,597   23,859   19,522   18,220   19,201   18,313
COGS   34,846   33,604   31,108   25,359   23,853   23,492   20,705   16,572   15,184   15,800   14,298
PBT 2153 653 1,247 1,685 2,047 2,737 2,595 2,265 2,690 3,026 3,505
TREND ANALYSIS 
Net Sales 213 198 189 152 142 145 130 107 99 105 100
COGS 244 235 218 177 167 164 145 116 106 111 100
PBT 61 19 36 48 58 78 74 65 77 86 100

XYZ Company

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 HINDALCO
 (Rupees  in crores) 2017 2016R 2015 2014 2013 2012 2011 2010 2009 2008 2007
Net Sales   38,946   36,317   34,525   27,851   26,057   26,597   23,859   19,522   18,220   19,201   18,313
COGS   34,846   33,604   31,108   25,359   23,853   23,492   20,705   16,572   15,184   15,800   14,298
PBT 2153 653 1,247 1,685 2,047 2,737 2,595 2,265 2,690 3,026 3,505
TREND ANALYSIS 
Net Sales 213 198 189 152 142 145 130 107 99 105 100
COGS 244 235 218 177 167 164 145 116 106 111 100
PBT 61 19 36 48 58 78 74 65 77 86 100

Hindalco Net Sales COGS PBT

300
200
78 77 86 100
61 58 74 65
100 36 48
19
0
2017 2016R 2015 2014 2013 2012 2011 2010 2009 2008 2007

Infosys  
 (Rupees  in crores) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Net Sales   59,289   53,983   47,300   44,341   36,765   31,254   25,385   21,140   20,264   15,648   13,149
PBT   18,938   17,600   16,798   14,002   12,357   11,674     8,821     7,472     6,714     5,100     4,129
Trend Analysis (in Percentages)
Net Sales 451 411 360 337 280 238 193 161 154 119 100
PBT 459 426 407 339 299 283 214 181 163 124 100

Infosys Net Sales PBT

500 459
426 407
400 339
299 283
300 214
181 163
200 124 100
100

0 8
2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
 Vertical Analysis

• Shows how the different components of a financial statement relate to a 
total figure in the statement 
• Expresses each financial statement item as a percent of a base amount
• Commonly applied to the balance sheet and the income statement.
– On the balance sheet, set total assets or (TL +SE) to 100 . 
– On the income statement, set net sales to 100 
– The resulting statement, expressed entirely in percentages
• is called a common‐size statement

• The total figure in the statement set to equal to 100 
– Each component’s percentage of that total is computed
• Useful for comparing
– The importance of specific components in the operation of a business
– Changes in the components from one year to the next
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Comparative Analysis 
‐ Intercompany Comparison by vertical analysis

Vertical analysis 
also enables a 
comparison of 
companies of 
different sizes and 
companies 
reporting in 
different 
currencies.

Although Chicago Cereal’s net sales are less than those of General Mills, vertical 
analysis eliminates the impact of this size difference for our analysis.

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HINDALCO: Income Statement
Income
HINDALCO : Common size IS 2017 2016 Change % ch CS17 CS16
Revenue from Operations 25 39,383.12 36,713.05 2,670.07 7% 0.98 0.97
Other Income 26 1,005.17 978.92 26.25 3% 0.02 0.03
Total Income 40,388.29 37,691.97 2,696.32 7% 1.00 1.00
Expenses  
Cost of Materials Consumed 27 21,018.22 19,208.79 1,809.43 9% 0.52 0.51
Purchases of Stock-in-Trade 28 89.11 1.48 87.63 0.00 0.00
Changes in Inventories of Finished Goods, Work-in-Progress and Stock 29 ‐1,100.16 191.7 ‐1,291.86 ‐0.03 0.01
Excise Duty on Sales 2,446.51 2,442.24 4.27 0% 0.06 0.06
Employee Benefi ts Expense 30 1,752.12 1,687.92 64.20 4% 0.04 0.04
Power and Fuel 31 5,898.67 6,508.06 ‐609.39 ‐9% 0.15 0.17
Finance Cost 32 2,322.87 2,390.14 ‐67.27 ‐3% 0.06 0.06
Depreciation and Amortization 33 1,427.97 1,282.02 145.95 11% 0.04 0.03
Impairment Charge (Reversal) 34 ‐   ‐ 
Other Expense 35 4,465.13 3,326.79 1,138.34 34% 0.11 0.09
Total Expenses 38,320.44 37,039.14 1,281.30 3% 0.95 0.98
Profit/(Loss) Before Exceptional Items and Tax from Continuing Operati  2,067.85 652.83 1,415.02 217% 0.05 0.02
Exceptional Income 36 84.89 84.89 0.00 0.00
Profit/(Loss) Before Tax from Continuing Operations 2,152.74 652.83 1,499.91 230% 0.05 0.02
Tax Expenses 37
Current tax 414.58 119.63 294.95 247% 0.01 0.00
Deferred tax 596.35 98.92 497.43 503% 0.01 0.00
MAT Credit Entitlement ‐414.58 ‐119.63 ‐294.95 247% ‐0.01 0.00
  596.35 98.92 497.43 503% 0.01 0.00
Profit/(Loss) for the period from continuing operations 1,556.39 553.91 1,002.48 181% 0.04 0.01
Profit/(Loss) from discontinued operations 0.5 ‐2.01 2.51 ‐125% 0.00 0.00
Profit/(Loss) for the period 1,556.89 551.9 1,004.99 182% 0.04 0.01
Net Sales HINDALCO : IS – Multistep ‐ CS 38,945.65  36,317.43  2,628.2  7.2  100.0  100.0 
Less: COGS  (Note 1) ‐33,419.88  ‐32,399.16  1,020.7  3.2  ‐85.8  ‐89.2 
Gross Profit 5,525.77  3,918.27  1,607.5  41.0  14.2  10.8 
Other Operating Revenues 437.47  395.62  41.9  10.6  1.1  1.1 
Operating Expenses (Note 2) ‐2,577.69  ‐2,249.84  327.8  14.6  ‐6.6  ‐6.2 
Operating Profit  3,385.55  2,064.05  1,321.5  64.0  8.7  5.7 
Non‐Operating items:  Other Income   1,005.17  978.92  26.3  2.7  2.6  2.7 
EBIT 4,390.72  3,042.97  1,347.7  44.3  11.3  8.4 
Less: Finance Costs   ‐2,322.87  ‐2,390.14  67.3  2.8  ‐6.0  ‐6.6 
Profit Before Exceptional Items and Tax 2,067.85  652.83  1,415.0  216.8  5.3  1.8 
Exceptional Items(Net) 84.89  ‐ 84.9  0.2  ‐
EBT or PBT ( Profit before Tax ) 2,152.74  652.83  1,499.9  229.8  5.5  1.8 
Tax Expenses (Current Tax + Deferred Tax) ‐596.35  ‐98.92  497.4  502.9  ‐1.5  ‐0.3 
PAT 1,556.39  553.91  1,002.5  181.0  4.0  1.5 
 Comparisons

X
Infosys HindalcoY
2017 2017
Total Assets 79885 100% 86322.15 100%
Non‐current assets 32203 40% 56732.39 66%
Total current assets 47682 60% 29508.25 34%
Total equity 68017 85% 47332.56 55%
Total non‐current liabilities 82 0% 20564.92 24%
Total current liabilities 11786 15% 18424.62 21%

Total Income 62351 100% 40388.29 100%

 Cost of Raw Materials Consumed   0 0% 21018.22 52%
Employee benefit expenses 30944 50% 1752.12 4%
Depreciation and amortization expense 1331 2% 1427.97 4%
Profit for the period 13818 22% 1556.89 4%
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EXERCISE 13‐6: (page 635)

EUDALEY CORPORATION
Condensed Income Statements Horizontal Analysis
For the Years Ended December 31 Increase or (Decrease)
During 2014
2014 2013 Amount Percentage
Net sales $598,000 $500,000 $98,000 19.6%
Cost of goods sold 477,000 420,000 57,000 13.6%
Gross profit 121,000 80,000 41,000 51.3%
Operating expenses 80,000 44,000 36,000 81.8%
Net income $ 41,000 $  36,000 $  5,000 13.9%

EUDALEY CORPORATION
Condensed Income Statements Vertical Analysis
For the Years Ended December 31
2014 2013
$ Percent $ Percent
Net sales $598,000 100.0% $500,000 100.0%
Cost of goods sold 477,000 79.8% 420,000 84.0%
Gross profit 121,000 20.2% 80,000 16.0%
Operating expenses 80,000 13.4% 44,000 8.8%
Net income $  41,000 6.8% $  36,000 7.2% 13
 Vertical analysis: Sustainable Income

Whom would you 
grant loan ?

Sustainable Income – Most likely level of income to be obtained in the future

• Net income adjusted for irregular and one time items (like discontinued operations,
extraordinary items)
• Users are interested in Sustainable Income because it helps them derive an estimate of
future earnings without a noise of irregular items 14
Thanks 

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