Chapter 15 focuses on financial statement analysis, which is used to assess the financial health of a company. It includes examining trends in key financial data, comparing financial data across companies, and analyzing financial ratios. | Financial Statement Analysis Chapter 15 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15: Financial Statement Analysis Chapter 15 focuses on financial statement analysis, which is used to assess the financial health of a company. It includes examining trends in key financial data, comparing financial data across companies, and analyzing financial ratios. Limitations of Financial Statement Analysis We use the LIFO method to value inventory. We use the average cost method to value inventory. Differences in accounting methods between companies sometimes make comparisons difficult. Differences in accounting methods between companies sometimes make it difficult to compare their financial data. For example, if one company values its inventory using the LIFO method and another uses the average cost method, then direct comparisons of financial data, such as inventory valuations and cost of goods sold, may be misleading. Even with this . | Financial Statement Analysis Chapter 15 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15: Financial Statement Analysis Chapter 15 focuses on financial statement analysis, which is used to assess the financial health of a company. It includes examining trends in key financial data, comparing financial data across companies, and analyzing financial ratios. Limitations of Financial Statement Analysis We use the LIFO method to value inventory. We use the average cost method to value inventory. Differences in accounting methods between companies sometimes make comparisons difficult. Differences in accounting methods between companies sometimes make it difficult to compare their financial data. For example, if one company values its inventory using the LIFO method and another uses the average cost method, then direct comparisons of financial data, such as inventory valuations and cost of goods sold, may be misleading. Even with this limitation in mind, comparing financial ratios with other companies or industry averages can provide useful insights. Limitations of Financial Statement Analysis Analysts should look beyond the ratios. Economic factors Industry trends Changes within the company Technological changes Consumer tastes Ratios should not be viewed as an end, but rather as a starting point. They raise many questions and point to opportunities for further analysis, but they rarely answer questions by themselves. In addition to ratios, other sources of data should also be considered, such as industry trends, technological changes, changes in consumer tastes, changes in broad economic factors, and changes within the company itself. Statements in Comparative and Common-Size Form Dollar and percentage changes on statements Common-size statements Ratios An item on a financial statement has little meaning by itself. The meaning of the numbers can be enhanced by drawing comparisons. An item on a balance sheet or income
