Example Trend Graph
Widgets Limited Values
Industry Average Values
The example graph is typical of the trend analysis provided for each company. Keeping in mind that both the
absolute values and the slope of the trendlines are significant, such a graph can tell an important story concerning
a firm's financial history. Assuming that our example graph is illustrating sales generated by Widgets Limited in
comparison with those generated by the industry (ie the industry average), here are a few possible interpretations.
Please note that the annual industry average equals total sales for a given year divided by total sales in 2006. Firms
without a sales value for each consecutive year following 2006 have been excluded from the summation of the
divisor. Industry sales fell from 105 to 100 between the years 2005 and 2006, whereas sales generated by Widgets
Limited increased during this period. In spite of a shrinking market, sales for Widgets Limited increased from 70
to 100 resulting in a gain in market share. Sales continued to increase between 2006 and 2008 as illustrated by
the firm's positive trendline slope. At this point in time, however, the industry began to gain some ground. The
industry and Widgets Limited were generating sales at the same rate and as a result, no market share was gained
on this occasion. Between 2007 and 2008, although the company had an increase in sales by 23% (ie 110 to
135), Widgets Limited lost its market share due to industry sales increasing at a greater rate.
Making Sense of Modified Accounts
Please be aware that figures are not always as they appear to be in company accounts. There are a couple
of reasons for this. Many firms employ very skilful accountants who massage annual figures in an attempt to
disguise a company's full or otherwise considered private financial position. Then there are those legal reporting
requirements which allow small and medium sized firms to file partial or modified accounts. A small firm may
choose to disclose its annual balance sheet figures only. Whereas, a medium sized firm may choose to file a
modified profit and loss statement omitting its details on sales. In some cases, however, if annual figures reflect
exceptionally well upon the company's operations, a small or medium sized firm may decide to file a complete
set of accounts.
A small company may file modified accounts with Companies House (ie a shortened balance sheet and
abbreviated notes) as long as it meets two out of the three following criteria:
1) The firm's annual turnover is less than £5,600,000.
2) The firm's average balance sheet total does not exceed £2,800,000.
3) The firm's average number of employees does not exceed 50 persons.
A medium sized company may file modified accounts with Companies House (ie a complete balance sheet, a
director's report and a modified profit and loss statement omitting the annual turnover figure) as long as it meets
two out of the three following criteria:
1) The firm's annual turnover is less than £22,800,000.
2) The firm's average balance sheet total does not exceed £11,400,000.
3) The firm's average number of employees does not exceed 250 persons.
14 | Chapter Two Introduction
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