1
00:00:00,180 --> 00:00:05,760
In this lecture, we will see how to perform horizontal analysis in Xin.

2
00:00:07,270 --> 00:00:15,580
Horizontal analysis is used to identify change in our revenue and expenditure over time.

3
00:00:17,750 --> 00:00:24,020
So here we have BNL, a statement of two years, 1891 and 1920.

4
00:00:25,860 --> 00:00:34,280
For horizontal analysis, we divide the difference of each category by its initial amount.

5
00:00:35,720 --> 00:00:39,980
So for change in sales revenue, we can ride equal to.

6
00:00:43,490 --> 00:00:54,950
1920 value minus 1890 in value of sales revenue divided by the sales revenue of 1819, which is the

7
00:00:54,950 --> 00:00:57,200
initial value of sales revenue.

8
00:00:58,830 --> 00:01:06,660
So you can see that there is a 15 percent increase in our sales revenue from 1890 to 1920.

9
00:01:07,910 --> 00:01:15,710
For horizontal analysis, we find this ratio for each of our PNL statement category.

10
00:01:17,360 --> 00:01:20,510
We are not going to write individual formula for itself.

11
00:01:20,870 --> 00:01:23,000
We will just drag this formula.

12
00:01:24,550 --> 00:01:26,890
To automatically calculate all the values.

13
00:01:28,080 --> 00:01:35,550
Now, let's check whether the formula we are using is correctly extended to other cells, so just select

14
00:01:35,550 --> 00:01:43,370
the cells below and click on this formula where you will see that the formula seems right.

15
00:01:43,770 --> 00:01:50,820
We are subtracting B6 from C6, which is OK, and then we are dividing this whole value by C6, which

16
00:01:50,820 --> 00:01:51,500
is also right.

17
00:01:52,500 --> 00:01:56,390
So we can extend this formula to other cells as well.

18
00:01:56,760 --> 00:01:58,170
And it is error-free.

19
00:02:01,110 --> 00:02:05,460
Oh, just delete this error message because the cells are empty.

20
00:02:07,350 --> 00:02:13,020
Now, here, positive number means increase and negative number means decrease.

21
00:02:14,470 --> 00:02:22,170
So from here, eighteen, nineteen to 1920, our sales revenue has increased by around 15 percent,

22
00:02:22,690 --> 00:02:26,150
the cost of goods has increased by 35 percent.

23
00:02:27,250 --> 00:02:35,890
And there is a dip in gross margin of around seven percent for expenses as well.

24
00:02:36,110 --> 00:02:41,320
Our advertisement expense is increased by 75 percent.

25
00:02:42,360 --> 00:02:49,830
Again, the major increase is in this other category of expenditure where the other expenditures are

26
00:02:49,830 --> 00:02:51,810
increased by around 80 percent.

27
00:02:53,460 --> 00:02:57,000
Now there is a dip in our net income before taxes.

28
00:02:57,150 --> 00:03:02,220
That is around 38 percent dip in the net income before taxes.

29
00:03:03,030 --> 00:03:10,380
And this dip in our net income resulted in around 60 percent dip in our net income.

30
00:03:11,350 --> 00:03:19,030
So when you are doing horizontal analysis, you will be able to identify the factors which are impacting

31
00:03:19,030 --> 00:03:23,100
your growth or dip in net income or net profit.

32
00:03:24,590 --> 00:03:33,320
Here there is a rise in our sales revenue that means that our sales is going good and you can notice

33
00:03:33,320 --> 00:03:41,270
that that is a very high increase in cost of goods sold, which means that probably the prices of raw

34
00:03:41,270 --> 00:03:43,010
materials has increased.

35
00:03:44,280 --> 00:03:50,120
Ordover Supply-Chain team is not negotiating well with the vendors or for raw material.

36
00:03:51,200 --> 00:03:55,790
So there is a need to control this race, of course, toward.

37
00:03:56,990 --> 00:04:05,750
Similarly, there is a huge rise in other expenses category, since this other category is not very

38
00:04:05,750 --> 00:04:06,160
clear.

39
00:04:06,260 --> 00:04:13,430
So we have to check what all categories are falling under this other category and we have to control

40
00:04:13,430 --> 00:04:14,810
all those expenses.

41
00:04:16,500 --> 00:04:21,030
There is also a significant rise in advertising expenditure.

42
00:04:23,200 --> 00:04:31,810
We have increased our advertising expenditure by 75 percent, but this increase in advertisement is

43
00:04:31,810 --> 00:04:34,660
not resulting in the sales revenue.

44
00:04:34,750 --> 00:04:41,470
Our sales revenue is increasing at just 15 percent, but we have increased our advertising budget by

45
00:04:41,470 --> 00:04:42,790
around 75 percent.

46
00:04:44,870 --> 00:04:52,100
So by doing horizontal analysis, you will be able to identify all these red flags and it will help

47
00:04:52,100 --> 00:04:56,270
you to detect improvement areas in your organization.