Comparisons

HA401 : The Class : Finance : Revenues : Comparisons

Comparisons

Comparing financial information to established guidelines and budgets is important to give validity and clarity to financial results. The numbers by themselves do not tell whether there are increases and improvements or decreases and declines. Comparisons look at dollar amounts, percentages, and changes. Comparison examples:

BUDGETS — Actual financial results for a month, quarter, or year are compared to the established budget. Budgets include improvements in revenues, costs and expenditures, and profits. Comparing actual results to the budget shows whether the business is moving in the direction planned or budgeted and how close it is in meeting, exceeding, or missing the budgeted numbers.

LAST YEAR — Comparing actual financial results to last year’s actual results is another useful comparison. The first evaluation of financial operations is to show if operations are better than last year. The best results are if actual operations for the current year are better than last year and budget. The worst results are if the current year is worse that last year and budget.

COMPETITION — This comparison is more difficult because it may be hard to obtain accurate financial performance from competitors. However, it is possible to get combined or market information that includes several or many competitors. That enables a business to compare to competition collectively rather than individually.

PRO-FORMAS — A new business does not have access to historical operating information. Therefore management, developers and bankers put together a pro-forma based on market conditions and financial returns. These are used until the business is open and operating and then a budget replaces the pro-forma.

Once you have completed this module you should:

Go on to Reading 7: Trends
or
Go back to Topic 1: Revenues

E-mail Lloyd Shelton at Lloyd.Shelton@nau.edu
or call (928) 527-7518