Tuesday, February 7, 2012

Visualizing Financial Statements: Column or Pie Charts?

As you know, Valuation Tutor provides different ways to visualize financial statement related information.  Some of these are pie charts, some column charts.  The other day, I was asked if a pie chart could also be rendered as a column chart since the user found column charts to be more intuitive.  This got me thinking that perhaps I should explain how the different types of charts are intended to be used.   Consider the following two charts, both displaying the same data:







In each, have selected six items to plot from the November 2011 10-Q balance sheet of www.1800flowers.com.  These items make up current assets (so current assets is the sum of these items).
The column chart shows how these variables have moved over the two reporting periods in the filing.  So inventories are up, receivables are up, cash is down.  Comparison across time, as in the chart, is sometime called “horizontal analysis.”
The pie chart shows you how the relative proportions have changed in a much more intuitive way.  In this particular case, since the items sum up to current assets, you can see that inventories are a much bigger part of current assets in October than in July, as are receivables.  Cash is a much smaller proportion, the remaining terms are about the same.
So I hope this makes clear the different type of information revealed by each type of chart.  The first shows the time trend in an easy way, and the second makes relative changes quite transparent.  Over time, I will provide more examples of how combining the visualizations give you detailed, and immediate, insight into a company, just as in this case.  If you were making an inference about this companies balance sheet, you might be concerned about the change in the composition of current assets as reported in the 10-Q.

2 comments:

sankalpa said...

excellent piece of information, I had come to know about your website from my friend kishore, pune,i have read atleast 8 posts of yours by now, and let me tell you, your site gives the best and the most interesting information. This is just the kind of information that i had been looking for, i'm already your rss reader now and i would regularly watch out for the new posts, once again hats off to you!
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Regards,

Free Valuation

Mike said...

Informative post! What I think that its easy way of visualizing financial statements. You can visualize & understand the whole thing within couple of minutes. Cheers!
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