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Financial Statement Analysis Horizontal analysis (Dollar and percentage changes on statements) Trend analysis Common-size statements (Vertical analysis)

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Presentation on theme: "Financial Statement Analysis Horizontal analysis (Dollar and percentage changes on statements) Trend analysis Common-size statements (Vertical analysis)"— Presentation transcript:

1 Financial Statement Analysis Horizontal analysis (Dollar and percentage changes on statements) Trend analysis Common-size statements (Vertical analysis) Ratios Analytical techniques used to examine relationships among financial statement items Covered here Next Page Click Here

2 Horizontal Analysis Horizontal analysis shows the changes between years in the financial data in both dollar and percentage form. Horizontal analysis shows the changes between years in the financial data in both dollar and percentage form. Next Page Click Here

3 Horizontal Analysis (using comparative financial statements) Calculating Change in Dollar Amounts Dollar Change Dollar Change Current Year Figure Current Year Figure Base Year Figure Base Year Figure =– Percentage Change Percentage Change Dollar Change Base Year Figure Dollar Change Base Year Figure 100% = × Calculating Change as a Percentage Next Page Click Here

4 Horizontal Analysis – Balance Sheet $12,000 – $23,500 = $(11,500) ($11,500 ÷ $23,500) × 100% = 48.9% 20A is the base year Next Page Click Here

5 Horizontal Analysis – Income Statement $520,000 – $480,000 = $40,000 $40,000 ÷ $480,000) × 100% = 8.3% Next Page Click Here

6 Trend Analysis Trend Percentage Current Year Amount Base Year Amount 100% = × Trend percentages state several years financial data in terms of a base year, which equals 100 percent. Trend percentages state several years financial data in terms of a base year, which equals 100 percent. Next Page Click Here

7 Trend Analysis The base year is 2002, and its amounts will equal 100%. 20C Amounts ÷ 20B Amounts × 100% = trend percentage ( $290,000 ÷ $275,000 ) × 100% = 105% ( $198,000 ÷ $190,000 ) × 100% = 104% ( $ 92,000 ÷ $ 85,000 ) × 100% = 108% 20C Amounts ÷ 20B Amounts × 100% = trend percentage ( $290,000 ÷ $275,000 ) × 100% = 105% ( $198,000 ÷ $190,000 ) × 100% = 104% ( $ 92,000 ÷ $ 85,000 ) × 100% = 108% Next Page Click Here

8 Trend Analysis Trend percentages can be used to construct a graph so the trend over time can be seen. Next Page Click Here

9 Common-Size Statements – Vertical Analysis Common-size statements use percentages to express the relationship of individual components to a total within a single period. This approach to financial statement analysis is also known as vertical analysis. Common-size statements use percentages to express the relationship of individual components to a total within a single period. This approach to financial statement analysis is also known as vertical analysis. Next Page Click Here

10 Common-Size Statements Net sales is usually the base and is expressed as 100%. Next Page Click Here

11 Common-Size Statements Next Page Click Here 20B COGS ÷ 20B Net Sales × 100% ( $360,000 ÷ $520,000 ) × 100% = 69.2% 20B COGS ÷ 20B Net Sales × 100% ( $360,000 ÷ $520,000 ) × 100% = 69.2% 20A COGS ÷ 20A Net Sales × 100% ( $315,000 ÷ $480,000 ) × 100% = 65.6% 20A COGS ÷ 20A Net Sales × 100% ( $315,000 ÷ $480,000 ) × 100% = 65.6%


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