AccountingPrinciplesFinancialStatementAnalysis幻灯片.pptxVIP

18Financial Statement AnalysisLearning ObjectivesApply horizontal and vertical analysis to financial statements.1Analyze a company’s performance using ratio analysis.2Apply the concept of sustainable income.3Apply horizontal and vertical analysis to financial statements.LEARNINGOBJECTIVE1Analyzing financial statements involves:CharacteristicsComparison BasesTools of AnalysisLiquidityProfitabilitySolvencyIntracompany Industry averages Intercompany HorizontalVerticalRatioLO 1Horizontal AnalysisHorizontal analysis, also called trend analysis, is a technique for evaluating a series of financial statement data over a period of time. Purpose is to determine the increase or decrease.Commonly applied to the balance sheet, income statement, and statement of retained earnings.LO 1Horizontal AnalysisIllustration 18-5Horizontal analysis ofbalance sheetsChanges suggest that the company expanded its asset base during 2013 and financed this expansion primarily by retaining income rather than assuming additional long-term debt.LO 1Horizontal AnalysisIllustration 18-6Horizontal analysis ofIncome statementsOverall, gross profit and net income were up substantially. Gross profit increased17.1%, and net income, 26.5%. Quality’s profit trend appears favorable.LO 1Horizontal AnalysisIllustration 18-7Horizontal analysis ofretained earnings statementsThe ending retained earnings increased 38.6%. As indicated earlier, the company retained a significant portion of net income to finance additional plant facilities.LO 1Vertical AnalysisVertical analysis, also called common-size analysis, is a technique that expresses each financial statement item as a percent of a base amount. On an income statement, we might say that selling expenses are 16% of net sales.Vertical analysis is commonly applied to thebalance sheet and income statement.LO 1Vertical AnalysisIllustration 18-8Vertical analysis ofbalance sheetsQuality is choosing to finance its growth through retention of earnings rather than through