Company A
Assets, liabilities and Equity
Assets, liabilities, and owner’s equity are significant in indicating the financial performance of an organization. Assets and liabilities will show the wealth and potential of revenue generation (Heizer and Render, 2014). On the other hand, the owner’s equity will show the investments that have been made after the value of the liabilities have been deducted (Gale et al., 2019). For company A the value of assets has been consistent between the 2017 and 2018 financial years. However, the value of the assets between the two years is not constant since there has been a slight increase. In 2017, the total assets for Company A stood at 104,136, and the value increased to 104,334 in 2018. The most significant shift in the asset value for company A has been experienced in 2019, where there is a massive decline from 104,334 in 2018 to 86,438 in 2019.
More so, there has been a decline in total liabilities and shareholder equity value from 104,137 to 104,334 in the financial years 2017 and 2018, respectively. In 2019 there was a considerable decline to 86,439 as the total liabilities and shareholders’ equity value. Therefore, the trend depicted in the total assets is the same for the liabilities and owner’s equity. A critical factor contributing to the decreasing value from 2018n to 2019 is the decline in the inventory. The Company is making more investment, and there is a low can inflow from the various business operations. So, if the situation persists, the organization might be operating at a loss in the future.
Revenue and Earnings
Revenue is the income generated by an organization from all the business operations. On the other hand, earnings are a representation of inflows from money after all the expenses have been put into account. Therefore, it includes the profits that have been made from the organization’s daily operations. The amount that has been earned from the daily outcomes will be a part of the revenue in the books of accounts. There has been a consistent increase in the amount of revenue for the Company in the three consecutive years. The rise was from 27,981 to 28,784 to 29,610 in 2017, 2018, and 2019 respectively. However, the value of the net earnings is behaving differently. For Company A, the net earnings decreased from 1,845 in 2017 to -168 in 2018. The negative value indicates poor performance for the Company in the financial years. It implies that thee daily expenses for the Company are much higher than the amount of revenue of profits being made. An approach to reduce the total expenses in 2019 made the total earning increase from -268 in 2018 to 2,379 in 2019. The new positive value is an indication that the Company is moving in the right direction.
Company B
Assets, liabilities and Equity
The trend in the assets for company B is the same as that of Company A. However, the main difference is in the amount of decline (Yanfeng, 2011). The decreasing rate of total assets, liabilities, and shareholders’ equity are enormous than that of Company A. In 2017, the total assets for company B were 124,316. However, there was a decline to 123,236 in 2018. A massive drop in the total assets was experienced in 2019 with 113,301. The liabilities have dropped from 124,317 to 123 236 and 113 301 in 2017, 2018, and 2019. The decrease in the assets, liabilities, and owner’s equity is also attributed to the tremendous change in the inventory. Inventory is defined as a list of property owned by the company, the goods in stock, and the other contents in the building (Mathur and Kallen, 2019). So, the organization’s management is focusing more on investment, and resource allocation is leading to more cash outflow than inflow.
Revenue and Earnings
The revenue for company B is behaving differently from Company A. There is a decrease in the amount of revenue generated from 27,981 in 2017 to 26,302 in 2018. However, there was an increase from 26,302 in 2018 to 27,091 in 2019. The trend created in Company B on their revenue is a promising trend of the anticipated increase in the consecutive years. On the other hand, the net earnings have a similar trend to that of Company A. There was a decline in the net earnings from 2,025 in 2017 to -669 in 2018. However, there was a change in the situation in 2019, where the net earnings for the organization increased to 100. A key contributing factor to the increase in earnings is the decreasing total expenses.
Conclusion
The financial performance of the two companies is similar to each other, however, from the financial analysis evaluation process. Company A performs much better than Company B. They have much higher revenue, and their shareholder’s equity is more. It is an indication that stakeholders in Company A are yielding more gains from investments than in the second organization. The past three years have been vital in revenue generation for both companies. In contrast, Company A has a hard transition from 2017 to 2018 of Company B is taking place smoothly with a massive increase in assets and decrease in liabilities.
References
Gale, W. G., Gelfond, H., Krupkin, A., Mazur, M. J., & Toder, E. J. (2019). Effects of the Tax Cuts and Jobs Act: A preliminary analysis. National Tax Journal, 71(4), 589-612.
Heizer, J. & Render, B., (2014). Operations Management. 11th ed. Pearson Education.
Mathur, A., & Kallen, C. (2019). Estimating the distributional implications of the Tax Cuts and Jobs Act (No. 1010239). American Enterprise Institute.
Yanfeng, Z. (2011). In the Eyes: How Entrepreneurs Evaluate Venture Capital Firms. Journal of Private Equity, 14(2), 72-85.
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