Chapter 23 - Financial statement analysis. After reading this chapter, you should be able to: Use vertical analysis techniques to analyze a comparative income statement and balance sheet, use horizontal analysis techniques to analyze a comparative income statement and balance sheet, use trend analysis to evaluate financial statements,. | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Statement Analysis Section 1: Vertical Analysis Chapter 23 Section Objectives Use vertical analysis techniques to analyze a comparative income statement and balance sheet. Phases of Statement Analysis Computation Phase: Vertical analysis Horizontal analysis Ratio analysis Interpretation Phase: Comparison of ratios Budgeted ratios Industry Averages Comparative Statement Common-size Statement Each item is expressed as either a percentage of total assets or of total liabilities plus stockholders’ equity. Vertical Analysis of the Balance Sheet Cash Total assets = $115,231 $555,711 = Accounts payable Total liabilities plus Stkhldrs’ equity = $ 71,000 $ 555,711 = Total stockholders’ equity Total liabilities plus Stkhldrs’ equity = $316,306 $ 555,711 = Financial Statement Analysis Section 2: Horizontal Analysis Chapter 23 Section Objectives Use horizontal analysis . | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Statement Analysis Section 1: Vertical Analysis Chapter 23 Section Objectives Use vertical analysis techniques to analyze a comparative income statement and balance sheet. Phases of Statement Analysis Computation Phase: Vertical analysis Horizontal analysis Ratio analysis Interpretation Phase: Comparison of ratios Budgeted ratios Industry Averages Comparative Statement Common-size Statement Each item is expressed as either a percentage of total assets or of total liabilities plus stockholders’ equity. Vertical Analysis of the Balance Sheet Cash Total assets = $115,231 $555,711 = Accounts payable Total liabilities plus Stkhldrs’ equity = $ 71,000 $ 555,711 = Total stockholders’ equity Total liabilities plus Stkhldrs’ equity = $316,306 $ 555,711 = Financial Statement Analysis Section 2: Horizontal Analysis Chapter 23 Section Objectives Use horizontal analysis techniques to analyze a comparative income statement and balance sheet. Use trend analysis to evaluate financial statements. Interpret the results of statement analyses by comparison with industry averages. Evaluates financial statements for two or more periods. Compares items in each line to determine the change in dollar amounts. Uses the same method for both the income statement and the balance sheet. Horizontal Analysis A percentage change can be shown by using the earlier figure as the base Use horizontal analysis techniques to analyze a comparative income statement and balance sheet Objective 2 Trend analysis compares selected ratios and percentages over a period of time. ANSWER: QUESTION: What is trend analysis? Often the time period is five years Use trend analysis to evaluate financial statements Objective 3 Trend Analysis The percentage of gross profit on sales to net sales decreased from percent in 2012 to percent in 2013. 2009 2010 2011 2012 2013 Using Industry .
