CHAPTER 13 PowerPoint Author: LuAnn Bean, Ph.D., CPA, CIA, CFE Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
13-2 Factors in Communicating Useful Information The primary objective of accounting is to provide information useful for decision making. To provide information that supports this objective, accountants must consider the following: Users Types of Decisions Information Analysis
13-3 Methods of Analysis Horizontal AnalysisPercentage Analysis Vertical Analysis Ratio Analysis
13-4 Milavec Company Financial Statements
13-5 Milavec Company Balance Sheets
13-6 Horizontal and Percentage Analysis Horizontal analysis (or trend analysis) refers to studying the behavior of individual financial statement items over several accounting periods. Absolute Amounts Percentage Analysis
13-7 Milavec Company Horizontal Analysis
13-8 Vertical Analysis Vertical analysis common- size Vertical analysis uses percentages to compare individual components of financial statements to a key statement figure. A common- size financial statement is a vertical analysis in which each financial statement item is expressed as a percentage.
13-9 Vertical Analysis of Income Statement In income statements, all items are usually expressed as a percentage of sales.
13-10 Milavec Company Vertical Analysis
13-11 Vertical Analysis of Balance Sheet In balance sheets, all items are usually expressed as a percentage of total assets.
13-13 Liquidity Ratios Liquidity ratios indicate a company’s ability to pay short- term debts. They focus on current assets and current liabilities. 1.Working Capital 2.Current Ratio 3.Quick Ratio 4.Accounts Receivable Ratios 5.Inventory Ratios
13-14 Solvency Ratios Solvency ratios are used to analyze a company’s long-term debt- paying ability and its financing structure. 1.Debt to Assets Ratio 2.Debt to Equity Ratio 3.Number of Times Interest Earned 4.Plant Assets to Long-Term Liabilities
13-15 Profitability Ratios Profitability ratios measure a company’s ability to generate earnings. 1.Net Margin (or Return on Sales) 2.Asset Turnover Ratio 3.Return on Investment 4.Return on Equity
13-16 Stock Market Ratios Stock market ratios analyze the earnings and dividends of a company. 1.Earnings Per Share 2.Book Value 3.Price-Earnings (PE) Ratio 4.Dividend Yield
13-17 Limitations of Financial Statement Analysis Different Industries Changing Economic Environment Accounting Principles
13-18 End of Chapter 13