Strategic Planning in the Small Business

Unit 2 HO 2-5 (continued)

Comparative Financial Summaries First, consider the balance

sheets (Table 2-2) and income statements (Table 2-3) for Wav­

erly Custom Jewelers-a corporation that has been in business

for only four years. Here, Waverly presents its financial

sum­

maries for each of the last four years. Since past years' records

are present, one can note key changes or trends.

Table 2-2

shows considerable growth in total assets for this firm over its

four-year history. Cash grew slowly in year two,

substantially

in year three and remained almost constant in year four. As

shown in Table 2-3, sales increased, decreased and then in­

creased again. Net income fell when sales increased, rose when

sales decreased, and then increased as sales peaked in year four.

Identifying the causes of the reported changes can be quite

difficult. Generally, one must know the business and the various

conditions and occurrences that may account for the pattern

of changes.Analvzing these changes can provide more reason­

able explanations and evaluations.

Comparative Percentage Summaries It may be useful to pres­

ent the items on the balance sheet as percentages of total assets

(Table 2-4). Similarly, income statement items can be presented

Table 2-3 Wavorly Custom Jewler;

Comparative Income Statements

Year 4 Year 3 Year 2 Year 1

Net Sales

$493,000 $464,000 $489,000 $421,200

Cost of goods sold 295,200 278,400

342,300 280,800

Gross

profit on sales $196,800 $185,600 $146,700 $140,400

Expenses:

Operating expense 19,600 14,600 11,600 11,600

Depreciation expense 97,800 92,100 104,000 93,600

Net income from operations $ 79,400 $ 78,900 $ 31,100 $ 35,200

Less interest expense 5,000 6,700 5,900 5,200

Net income before tax $ 74,400 $ 72,200 $ 25,200 $ 30,000

Less income tax expeme

37,700 36,100 12,600 15,000

NET INCOME $ 37,700 $ 36,100 $ 12,600 $ 15,000

Chapter Two InternalAnalysis 63

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