Common-size financial statements are a convenient a to compare financials because this format eliminates some of the bias
Rebecca
Common-size financial statements are a convenient a to compare financials because this format eliminates some of the bias that may occur when looking at financials over multiple periods. Due to the fact that common-size financials utilize comparable figures, the statements are able to be compared between organizations, although each statement may be slightly different due to method of conversion (Hayes, 2020).For this vertical analysis, I am comparing Signet Jewelry to Lovisa for the years 2019 and 2020.Total current assets for Signet shows an increase from 2019 to 2020, while there is a decrease in the same time for Lovisa. Signet increased from 4% to 6% and Lovisa decreased from 29% to 19% in the same time frame. Both Signet and Lovisa have 50% of their assets as current assets in 2020 showing that they have the same amount of liquidity.When comparing the two companies operating revenue both companies increased from 2019 to 2020. Signet had a much greater increase in operating revenue that Lovisa did in the same time period. The increase in operating revenue long with the lack in change in operating expense for Signet shows that the company is able to manage costs while still generating sales. Lovisa was also able to increase operating revenue for the same period, but they also increase operating expenses.When comparing the companies net cash used in financing activities has the greatest differences. When looking at Signet, in 2020 they were at 63% and the year prior they were at 300%. In comparison, Lovisa was at 306% in 2020 and 103% in 2019. These swings can be attributed to paying off debt or getting more debt.The comparison between Signet and Lovisa indicates that Signet has not made any financial decisions that drastically impact their financial statements, other than bringing on additional businesses that came with the negative goodwill. Signet has shown to be a profitable company and a good investment in the long run.Disc 2 workbook (2).pngResources:FY 2020 Annual Report. Lovisa. (2020, May 30). https://www.asx.com.au/asxpdf/20190926/pdf/448w9903tcxmc8.pdf
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