Chapter 12
Using Accounting Information
359
A way to describe this trend is that the cash balance decreased by 75% between 2014 and 2016.
This could be the reason why Star Hotel needs a loan, because the company does not have enough
cash to pay for renovations.
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 Changed with 2014 Base-Year
As at December 31, 2014 - 2016
2016
2015
2014
Cash
-75%*
-38%
0%
Total Current Assets
60%
30%
0%
Property, Plant & Equipment
-6%
-5%
0%
Total Assets
5%
3%
0%
Total Current Liabilities
-20%
-15%
0%
Total Shareholders’ Equity
11%
6%
0%
*($8,000 − $32,000) ÷ $32,000 = -75%
_______________
Figure 12.7
One item to note in Figure 12.6 is that there 0% changes for 2014.There is no percent change from
the base-year figure, because they are the same dollar amounts (i.e. $32,000 minus $32,000 equals
$0. Next, $0 divided by $32,000 equals $0).
Instead of comparing the dollars to a base year, the bank could use one of the line items as a base-
figure. Usually, the
base-figure
is a total dollar amount such as total assets. Figure 12.8 shows the
percentage of line items by using total assets as the base. This is called
vertical analysis
because
each separate line item is being compared to the base-figure within the specific year.
Star Hotel
Key Percentages
As at December 31, 2014 - 2016
2016
2015
2014
Cash
1%*
3%
6%
Total Current Assets
27%
22%
18%
Property, Plant & Equipment
73%
78%
82%
Total Assets
100% 100% 100%
Total Current Liabilities
13%
15%
18%
Total Shareholders’ Equity
87%
85%
82%
*$8,000 ÷ $600,000 = 1%
_______________
Figure 12.8
