Chapter 12
Using Accounting Information
358
A way to describe this trend is that cash in 2016 is at 25% of the balance in 2014. Repeat this
calculation for each separate line item across the years.
Star Hotel
Key Figures
As at December 31, 2014 - 2016
2016
2015
2014
Cash
$8,000
$20,000
$32,000
Total Current Assets
160,000
130,000
100,000
Property, Plant & Equipment
440,000
455,000
470,000
Total Assets
600,000
585,000
570,000
Total Current Liabilities
80,000
85,000
100,000
Total Shareholders’ Equity
520,000
500,000
470,000
Star Hotel
Percentage of 2014 Base-Year
As at December 31, 2014 - 2016
2016
2015
2014
Cash
25%*
63%
100%
Total Current Assets
160%
130%
100%
Property, Plant & Equipment
94%
97%
100%
Total Assets
105%
103%
100%
Total Current Liabilities
80%
85%
100%
Total Shareholders’ Equity
111%
106%
100%
*$8,000 ÷ $32,000 = 25%
_______________
Figure 12.6
Using this method, the bank can see trends emerging in the data. Despite cash significantly
decreasing over time, total current assets have been steadily increasing. Liabilities have been reduced
while shareholders’ equity has been increasing since 2014.There are no major concerns with these
observations.
Alternatively, there is another calculation method which describes percentage changes between
years for line items. The method simply subtracts an old figure from a new figure, and then it
divides the result by the old figure of the same line item.The formula is as follows.
Percentage changed
since base-year
=
New account balance − Base-year account balance
Base-year account balance
Figure 12.7 summarizes some key financial information for Star Hotel’s previous three years. As
before, 2014 is selected as the base-year. For cash, we will always subtract $32,000 from the year
we are examining and divide the result by $32,000. For example, the balance of cash in 2016 was
$8,000.
$8,000 – $32,000
=
– 0.75
or
– 75%
$32,000
