Report: Vertical and Horizontal Analysis of Credo Ltd (2015-2019)

This report provides a financial analysis of Credo Ltd from 2015 to 2019, utilizing both vertical and horizontal analysis techniques. The introduction outlines the process of accounting and financial statement preparation. The main body of the report presents the vertical analysis, showing the percentage distribution of revenue, cost of sales, gross profit, administrative expenses, selling and distribution costs, profit before tax, tax, and profit after tax for each year. The horizontal analysis reveals the percentage change in these financial metrics from a base year. Key features of the financial performance, such as trends in revenue, expenses, and profit margins, are highlighted. The report assesses the credibility of the company based on its financial performance, noting revenue growth, cost management, and profitability. The conclusion summarizes the findings, emphasizing the insights gained from the analysis. The report references relevant accounting literature to support its analysis.

ACCOUNTING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
MAIN BODY..................................................................................................................................1
a) Vertical and horizontal analysis..............................................................................................1
b) Key Features............................................................................................................................2
c) Credibility of the company......................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUTION
Accounting refers to the process that involves recording the financial transaction for
preparation of the financial statements. Report will provide vertical and horizontal analysis of
Credo ltd for the year 2015 to 2019.
MAIN BODY
a) Vertical and horizontal analysis
Vertical analysis
Vertical Analysis
2,019
2,01
8 2,017 2,016 2,015
Revenue 100% 100% 100% 100% 100%
Cost of Sales -61% 61% 60% 60% -59%
Gross Profit 39% 39% 40% 40% 41%
Administrative
expenses -17% -15% -15% -16% -16%
Selling and distribution
costs -16% -15% -15% -16% -16%
Profit before Tax 7% 9% 10% 8% 8%
Tax -2% -3% -3% -3% -2%
Profit after tax 5% 6% 7% 6% 6%
Horizontal analysis
Horizontal analysis
2,016 2,018 2,018 2,019
Revenue 3.56% 13.32% 12.98% 10.01%
Cost of Sales 4.46% 15.92% 15.98% 13.08%
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Gross Profit 2.26% 9.58% 8.66% 5.57%
Administrative expenses 1.77% 6.18% 6.38% 10.58%
Selling and distribution
costs 1.08% 1.33% 2.56% 6.92%
Profit before Tax 5.54% 32.56% 25.20% -7.06%
Tax 5.37% 32.55% 25.17% -7.05%
Profit after tax 5.62% 32.56% 25.22% -7.06%
b) Key Features
Vertical analysis
 Company has adequately maintained the proportion of cost of sales over the 5 years.
 Gross profit reduced to 39% in 2019 from 41% in 2015.
 Net profit percentage has declined to 5% from 7% in 2017.
Horizontal analysis
 Revenues rose to 10% by 2019 of company.
 Administrative expenses have increased by 10.58% from the base year 2015.
 Profit before and after tax has reduced by 7% approx from the base year.
c) Credibility of the company
Financial performance and position of the company is analysed using the financial
statements. The financial analysis of the company could be done using horizontal and vertical
analysis. It is used by the experts and analysts for decision making purposes (Anderson and
et.al., 2017). In the present case financial analysis of the Credo limited has been performed for
analysing the credibility of company.
It could be analysed that the revenues of the company has shown growth over the five years
but it could also be seen that trend has moved downward from 2017. This is seen due to entrance
of new firms in the sector increasing availability of substitutes. The company is profitable during
the period of five year and the return as against the revenues has decreased to 5 % which were
7% in 2017. The costs of sales have been managed effectively by keeping it under control. the
proportion of cost has not increased over the years. Other operational costs of the company have
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also not shown higher fluctuations. Increase in seen administration costs that are essential for
running the company. The analysis shows that the performance of the company over the 5 years
has been credible (Johnson, 2019). The management of the company has maintained the internal
operation effectively that has helped the company in remaining profitable for years.
CONCLUSION
The above analysis shows that performance of the company could be analysed using vertical
and horizontal analysis. The analysis shows that financial performance of the company is
credible.
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REFERENCES
Books and Journals
Anderson, S.W. and et.al., 2017. Getting to know you: trust formation in new interfirm
relationships and the consequences for investments in management control and the
collaboration. Contemporary Accounting Research.34(2).pp.940-965.
Johnson, S., 2019. Analysis of Financial Accounting Theory and Methodologies.
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