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

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

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

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

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

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

7. 20C Amounts ÷ 20B Amounts × 100% = trend percentage
Next Page
Click Here
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%

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

9. Common-Size Statements – Vertical Analysis
Next Page
Click Here
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.

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

11. Common-Size Statements
Next Page
Click Here
Common-Size Statements
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%