We can add context to this number by calculating the percentage change during the period. To do this, just divide the difference from above, $420 million, by last year's total assets, $1.975 billion. Multiply that result by 100 to see the percentage change -- in this case, 21.3%. Again, a positive number indicates growth, and a negative number indicates a decline.
To calculate the changes for specific asset accounts, the math is the exact same. Find the difference between the two years, divide by last year's number, and multiply by 100.
The next step is the most important
After you've done the math and calculated the change in assets, the next thing you should always do is ask yourself why. Did total assets increase or decrease? Which specific assets increased or decreased to drive the overall changes? Why are we seeing these changes in the company's assets?
This step is critical, because it connects the changes in the numbers with actual events, decisions, and strategies at the company.
In our example, the increase in accounts receivable and inventory are the primary drivers of the overall increase in total assets. Thinking critically about these changes, we would expect that the company has also seen a rise in sales. This is because a company that's experiencing sales growth would also see receivables increase commensurate with the new sales, and we'd expect management to increase inventory to keep enough product on hand to deliver on the higher sales volume.
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