2. PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 13 Measuring and Evaluating Financial Performance

3. 13- 3 Horizontal (Trend) Computations Trend analyses are usually calculated in terms of year-to-year dollar and percentage changes.

4. 13- 4 Now let’s look at the remainder of the trend analysis of the Income Statement. Can you calculate the dollar and percentage change for Cost of Sales? Now let’s calculate the percentage change in Net Sales Revenue between 2009 and 2008. Horizontal (Trend) Computations Calculate the change in dollars for Net Sales Revenue between 2010 and 2009. $48,815 – $47,220 $47,220 × 100

5. 13- 5 Vertical (Common Size) Computations Vertical, or common size, analysis focuses on important relationships within financial statements. Income Statement Balance Sheet Sales = 100% Total Assets = 100% Cost of Sales Net Sales Revenue × 100

6. 13- 6 Ratio Computations Ratio analysis compares the amounts for one or more line items to the amounts for other line items in the same year. Ratios are classified into three categories... Profitability ratios examine a company’s ability to generate income. Profitability ratios examine a company’s ability to generate income. Liquidity ratios help us determine if a company has sufficient current assets to repay liabilities when due. Liquidity ratios help us determine if a company has sufficient current assets to repay liabilities when due. Solvency ratios examine a company’s ability to pay interest and repay debt when due. Solvency ratios examine a company’s ability to pay interest and repay debt when due.

7. 13- 7 Common Profitability Ratios

8. 13- 8 Common Liquidity Ratios

9. 13- 9 Common Solvency Ratios

10. 13- 10 End of Chapter 13