Chapter 11 - Financial statement analysis. After reading this chapter, you should be able to answer the following questions: How can liquidity measures be influenced by the inventory cost-flow assumption used? How do suppliers and creditors use a customer’s payment practices to judge liquidity? What are the influences of alternative inventory cost-flow assumptions and depreciation methods on turnover ratios?. | © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Accounting: What The Numbers Mean Tenth Edition Marshall, McManus, and Viele Chapter 11 Financial Statement Analysis PowerPoint Authors: Susan Coomer Galbreath, ., CPA Charles W. Caldwell, ., CMA Jon A. Booker, ., CPA, CIA Cynthia J. Rooney, ., CPA Chapter 11: Financial Statement Analysis Financial Statement Ratios Ratios are used to interpret the financial position and results of operations of an entity and may be grouped in the following four categories: Liquidity. Activity. Profitability. Debt, or financial leverage. 11- Financial statement ratios are used to interpret the financial position and results of operations of an entity and may be grouped in the following four categories: liquidity, activity, profitability, and debt, or financial leverage. Consideration When Using Ratios We should always look beyond the ratios. Economic factors Industry trends Changes within the firm Technological changes Consumer tastes 11- We should always look beyond the ratios. Technological changes, industry trends, changes within the firm, consumer tastes, and economic factors should also be considered when using ratios Consideration When Using Ratios Differences in accounting methods between companies sometimes make comparisons difficult. We use the LIFO method to value inventory. We use the FIFO method to value inventory. L O 1 11- Learning Objective 1: Explain how liquidity measures can be influenced by the inventory cost flow assumption used. Differences in accounting methods between companies, such as LIFO and FIFO inventory valuation methods, sometimes make comparisons difficult. Liquidity Measures The liquidity measures of working capital, current ratio, and acid-test ratio were discussed in Chapter 3. L O 2 11- Learning Objective 2: Explain how suppliers and creditors use a customer’s payment practices to judge liquidity. The liquidity measures of working capital, | © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Accounting: What The Numbers Mean Tenth Edition Marshall, McManus, and Viele Chapter 11 Financial Statement Analysis PowerPoint Authors: Susan Coomer Galbreath, ., CPA Charles W. Caldwell, ., CMA Jon A. Booker, ., CPA, CIA Cynthia J. Rooney, ., CPA Chapter 11: Financial Statement Analysis Financial Statement Ratios Ratios are used to interpret the financial position and results of operations of an entity and may be grouped in the following four categories: Liquidity. Activity. Profitability. Debt, or financial leverage. 11- Financial statement ratios are used to interpret the financial position and results of operations of an entity and may be grouped in the following four categories: liquidity, activity, profitability, and debt, or financial leverage. Consideration When Using Ratios We should always look beyond the ratios. Economic factors Industry trends Changes within the firm Technological .
