Chapter 12 - Financial statement analysis. After studying this chapter, you should be able to: Understand the concept of earning power and indicate how irregular items are presented, discuss the need for comparative analysis and identify the tools of financial statement analysis, explain and apply horizontal analysis, explain and apply vertical analysis,. | John Wiley & Sons, Inc. Prepared by Karleen Nordquist The College of St. Benedict. and St. John’s University. with contributions by Dr. Jessica J. Frazier and Philip Li. Eastern Kentucky University . Managerial Accounting Weygandt, Kieso, & Kimmel 1 Chapter 12 Financial Statement Analysis After studying this chapter, you should be able to: 1 Understand the concept of earning power and indicate how irregular items are presented. 2 Discuss the need for comparative analysis and identify the tools of financial statement analysis. 3 Explain and apply horizontal analysis. 4 Explain and apply vertical analysis. 5 Identify and compute ratios and describe their purpose and use in analyzing a firm’s liquidity, solvency, and profitability. 6 Discuss the limitations of financial statement analysis. Chapter 12 Financial Statement Analysis Preview of Chapter 12 Earning Power and Irregular Items Discontinued Operations Extraordinary Items Changes in Accounting Principle Comprehensive . | John Wiley & Sons, Inc. Prepared by Karleen Nordquist The College of St. Benedict. and St. John’s University. with contributions by Dr. Jessica J. Frazier and Philip Li. Eastern Kentucky University . Managerial Accounting Weygandt, Kieso, & Kimmel 1 Chapter 12 Financial Statement Analysis After studying this chapter, you should be able to: 1 Understand the concept of earning power and indicate how irregular items are presented. 2 Discuss the need for comparative analysis and identify the tools of financial statement analysis. 3 Explain and apply horizontal analysis. 4 Explain and apply vertical analysis. 5 Identify and compute ratios and describe their purpose and use in analyzing a firm’s liquidity, solvency, and profitability. 6 Discuss the limitations of financial statement analysis. Chapter 12 Financial Statement Analysis Preview of Chapter 12 Earning Power and Irregular Items Discontinued Operations Extraordinary Items Changes in Accounting Principle Comprehensive Income Comparative Analysis Horizontal Analysis Vertical Analysis FINANACIAL STATEMENT ANALYSIS Preview of Chapter 12 Ratio Analysis Liquidity Ratios Solvency Ratios Profitability Ratios Limitations of Financial Analysis Estimates Cost Alternative Accounting Methods Atypical Data Diversification FINANCIAL STATEMENT ANALYSIS Understand the concept of earning power and indicate how irregular items are presented. Study Objective 1 Earning Power and Irregular Items Ultimately, the value of a company is a function of its future cash flows. When analysts use this year’s net income to estimate future cash flows, they must make sure this year’s net income does not include irregular revenues, expenses, gains, or losses. Net income adjusted for irregular items is referred to as earning power. Earning power is the most likely level of income to be obtained in the future (to the extent this year’s income is a good predictor of future income. 3 PowerPoint Slides Earning Power and Irregular Items As an .
