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An investor may perform horizontal analysis, not just for one company but for a number of companies in a particular industry, to gain an idea of the performance of the various businesses in that industry. The potential investor wants to examine the trend in profitability of the Britannia Pudding Corporation and as a first step looks at the trend in sales. 300,000. A food processing company that sees the Britannia Pudding Corporation as a potential takeover target aims to assess its profitability using a horizontal analysis. If the objective is to analyze the profitability of the enterprise, appropriate figures such as the gross profit ratio or net profit ratio should be the subject of the horizontal analysis. Measurement of the types of prospects and customers is essential so that considerable effort is not expended on the low profitability customers or those whose long term potential to the company is small.

For example in the public sector, employees may be satisfied owing to the lack of pressure in their jobs, but it necessarily does not imply that they will make efforts to satisfy their customers. The approach is illustrated by walking through an example of a horizontal analysis. Uncertainties are inevitable, and when confronted by uncertainties the best approach is to make conservative sales forecasts. The conservative approach suggests that you should make your forecasts as close to the base rate or average as possible. Considering that you only make a buck or two on each candy bar sold, it takes a lot of them to really see the profits add up. Because they tear off large pieces to swallow whole, it takes them some time to digest this food, up to 3 to 7 days. These guidelines recommend recognizing revenue only when there exists persuasive evidence of an arrangement, delivery of the product or service takes place, and the price is fixed or determinable, with collection of payment is either done, or reasonably assured. GAAP recognizes revenue only after the conditions of payment, which is usually delivery of the product, is complete. When payment does not accompany point of sale, GAAP recommends recording revenue on account.

For instance, how to account for payment received in April for a product sold in January? Other than the tangible price value, the benefits your customer will receive from a key account program are less tangible: a highly customized, service-supported product or service. Quotation – This is an agreement, usually written, from a producer to a potential customer to sell goods or services at a particular price and quantity. You must have customers to sell your service or product. You must anticipate the reader’s objections and doubts and offer counter arguments. When analyzing market changes, you must also consider the impact of market changes on factors affecting your sales, whether directly or indirectly. Based on the graphical representation of the demands being made in the market for a particular product or service, it is necessary that an estimate should be made to maintain relevant number of stocks all the time for instant requirements.

With time and experience you will get better at developing a reasonable estimate. The investor will see this as a positive sign but will wish to look further into the company’s sales strategy and plans for the future. Although a horizontal analysis could be performed for all the items in a particular financial statement, the investor may be interested in certain items or ratios in particular. Horizontal analysis of a company’s financial statements is the comparison of income or expense headings or other items in the accounts over a particular period of time, such as two or more accounting periods. The standard accounting periods are quarterly, combining to form annual statements. The task of horizontal analysis is made easier for investors by accounting standards which generally require the disclosure in the financial statements of equivalent figures for previous periods, facilitating comparison between periods. The comparison of figures over two or more periods may take the form of an examination of the increase or decrease in the figures over time or an analysis of the percentage increase or decrease. It can be engaged to surrogate a number of services with distinct response time.

Purchase Order – This is a written order giving the authorization to purchase goods or services from a supplier. Invoice – This document is sent to request payment for monies owed, for goods that were delivered, or services that were rendered. Sales Order – A sales order (SO) is an internal document that is generated from a customer’s purchase order. Debit Note – This document is sent from a customer to a supplier to request a credit note in respect to an overpayment or return of goods. Revenue recognition requires actual transfer of the product to the customer. An Independent Sales Representative needs to learn about the product or service he or she is selling. 400,000.The sales have therefore increased by 25% in the year. To improve forecast accuracy, you cannot have it as a random activity or as once a year activity. Using some or all of these tips will certainly help improve forecast accuracy. Whether you are having a professional complete your taxes or you are doing them yourself, there are several things you need to know to help the process go more smoothly.