COMPARING APPLES TO APPLES: Using Comparative Analysis

We’re halfway through this calendar year.?How is your company doing??As a business owner you should continuously be taking stock in the status of your company.?But how do you know if your company is doing well, or on the brink of disaster?

The first place to start is a review of your company financial statements.?Normally, comparing your current year financial results with the results from the same period last year will show where you are either performing better or worse than a year ago.?This is called comparative analysis, but it only works when both periods are similar.

Last year was anything but a normal year, and comparing this year to last, will give you some very misleading results.?A better approach would be to include three periods in your analysis and compare more similar periods of time.?For example, we know that the COVID-19 restrictions began in late February of 2020 and businesses began to operate “more normally” in February of 2021.?Therefore, comparing March 2019 through June 2019 to the same period in 2021 will provide a more accurate non-COVID-19 analysis of your operations.

So, pull out your income statement from the second quarter of 2019 and compare it to second quarter 2021.?Do you have more sales??You should.?Even if during these periods you sold the same quantity of “stuff”, your current sales prices should be higher giving you greater total sales.?How’s your gross profit??It has probably gone down a little because your cost of goods sold has gone up recently due to inflation and you have been reticent to raise your prices.?Are your overhead expenses a greater percentage of gross sales??Labor costs can be a major component of overhead.?Given the trouble many businesses are experiencing hiring workers, you may be experiencing more overtime costs.?Most importantly, how is your net income??It is mostly likely lower, but as a percentage of sales if it is similar, then you have done a good job matching your operations to demand.

The chaos we all experienced in the last year is going to continue to present analytic challenges to business owners.?Finding the right data to analyze and compare may be difficult.?Remember, the goal of analysis to discover trends in similar data, but you have to begin with similar data.

Do you need help designing financial reports that provide meaningful information??Need help analyzing your data??Contact ARI today!?We can help you!