Cause-of-change Analysis | Financial Statement Analysis

It is important to understand why a company's net income increased (or decreased) from one period to the next. Cause-of-change analysis breaks a change in profit into its specific components so you can understand which factors contributed to the increase (or decrease) in net income.
For example, you can identify the effect of (1) a change in weekly sales, (2) a change in the operating margin, and (3) a change in the effective tax rate. Each company is different and you can tailor your analysis accordingly; the key is that you start with the net income for the base year and then make adjustments one-at-a-time to see how each change affected the company's net income.
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[@Nathan-ve2uw]

Great video! One comment: it seems plausible that there could be an interaction between two or more of these variables. For example, it could be the case that due to the tax cut, a company changed its pricing strategy, which then affected its top line. However, the analysis result here seems to imply that, even if there had been no tax cut, revenue's share in the change in net income would have been the same, which I think is a bit of a logical leap. I would always at least check my conclusions against a company's 10-K if it's publicly listed.

[@unknownsponge14]

Never thought of breaking it out like that!

[@vinceroos]

1. Do this for your company. 2. Plot the data in a pie chart as a %. 3. Get promoted. 4. Easy raise.

[@vinceroos]

Great vid. Some people call this a 'Sensitivity analysis'.

[@alhussainalmostaneer1170]

Why COGS was not considered on cause of change analysis? Specially sometimes it is one of the main drivers to increase profit if optimized ?

[@lorrivac638]

Sames question here, is it the same process if we use expenses as the variables?

[@Sai-tek]

Nice video. But where and how should we pinpoint the factors causing changes in sales.

[@Edspira]

Excellent question. Every company is different, but let's say you're looking at a retailer like Dollar General. You could analyze the change in sales to see how much came from organic growth (same-store sales) versus opening new stores.

[@tarekalsherif57]

Awesome!

[@Edspira]

Thank you my friend!

[@Unknown-pt7xe]

So helpful, thanks

[@Edspira]

Glad it was helpful!

[@becerrex4256]

Cool. Would you get the same results if you change the order of variables analyzed?

[@vinceroos]

yes

[@sherwinlouie2191]

Brillant!

[@Edspira]

Thank you!

[@sniffthemout]

great video, how did you get that 63% under EBT

[@kr8992]

Net Income divided by EBT

[@darrenshopbell9857]

Is your excel file public?

[@nataliaortiz4539]

would it be possible to share the Excel document?

[@averysullivan7819]

「内容を明確にする必要があります」、