From the course: Excel: Management Accounting
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Interpreting financial results - Microsoft Excel Tutorial
From the course: Excel: Management Accounting
Interpreting financial results
- [Instructor] Beyond building bridge charts, we need to understand how to make recommendations based on them. In particular, firm leaders often wanna hear after action reports that tell them what the company is doing well and where they need to focus in order to improve. The bridge chart can help with exactly this type of analysis. What we have here is a standard simplified income statement that shows us profit and loss leverage. What we observe here is really the power of price. This chart is for an oil company. During the period in question, oil prices fell. As a result, sales fell 5.4%. While sales fell 5.4%, due to the power of price, operational profits and net income fell a whopping 26.2% and 26.6% respectively. What caused that falloff? Well, for one thing, COGS, Cost Of Goods Sold, essentially didn't change. The company had fixed price contracts and as a result, in a competitive environment with falling prices, they were unable to realize the kind of cost savings that would…
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