Analysis of a Financial Statement

profilemari4b
ch13mari.pdf

ACG 2071 Chapter 13: Analysis of Financial Statements

Created by M. Mari Fall 2011-1 1

Financial Statement Analysis

• Applies analytical tools to general purpose financial statements and related data for making business decisions.

• Purpose:

• Internal users: it provides strategic information to improve company efficiency and effectiveness in proving products and services

• External users: rely on financial statement analysis to make better and more informed decisions in pursuing their own goals

• Common Goals: • Evaluate company performance and financial conditions • Evaluating past and current performance • Evaluating current financial position • Evaluating future performance and risk

Building Blocks of Analysis

Horizontal Analysis

• Refers to the examination of financial statements across time • Comparative statements facilitates this. • Its shows financial amounts in side-by-side columns on a single statement • Includes: • Dollar change = Current period amount – base period amount • Percent Change = Current period amount – base period amount • Base period amount

Liquidity and efficiency

Solvency

Profitability

Market prospects

ACG 2071 Chapter 13: Analysis of Financial Statements

Created by M. Mari Fall 2011-1 2

Comparison of two years of operations by computing the dollar change and percentage change in the line items.

ACG 2071 Chapter 13: Analysis of Financial Statements

Created by M. Mari Fall 2011-1 3

Trend Analysis:

• Form of horizontal analysis that can reveal patterns in data across successive periods.

• It involves computing trend percents for a series of financial numbers and is a variation on the use of percent changes

• Trend Percent = Current period amount X 100 • Base period amount