After completing chapter 14 you should be able to: Explain the types and payment patterns of notes, compare bond financing with shares financing, assess debt features and their implications, compute the debt-to-equity ratio and explain its use, prepare entries to record bond issuance and interest expense,. | Financial Statement Analysis Chapter 14 Chapter 14: Financial statement analysis Financial Statements Are Designed for Analysis Financial statements may be presented in various formats to help facilitate analysis. A classified set of financial statements groups items with similar characteristics together. Groupings include categories such as current assets; property, plant, and equipment; current liabilities; noncurrent liabilities; revenues; selling expenses; and so forth. Comparative financial statements present several years of financial information side by side for ease of recognizing trends and changes in amounts. Consolidated financial statements present combined information for the parent company and all subsidiaries. Dollar & Percentage Changes Trend Percentages Component Percentages Ratios Tools of Analysis In order to compare companies or to assess the status of a single company, analysts use several different forms of analysis. Analysts use the change in dollar and percentage changes, trend percentages, component percentages, and ratios to perform assessments of a company’s performance. Let’s look at how each of these tools can be used. Dollar and Percentage Changes Dollar Change: Analysis Period Amount Base Period Amount Dollar Change = – Percentage Change: Dollar Change Base Period Amount Percent Change = ÷ To determine the dollar change in an item, take the current period amount and subtract the base period amount. The base period is the period from which you are trying to determine the change. The base period may be the immediate past period or several periods earlier. To determine the percentage change in an item, take the dollar change and divide it by the base period amount. Dollar and Percentage Changes Sales and earnings should increase at more than the rate of inflation. In measuring quarterly changes, compare to the same quarter in the previous year. Percentages may be misleading when the base amount is small. Evaluating . | Financial Statement Analysis Chapter 14 Chapter 14: Financial statement analysis Financial Statements Are Designed for Analysis Financial statements may be presented in various formats to help facilitate analysis. A classified set of financial statements groups items with similar characteristics together. Groupings include categories such as current assets; property, plant, and equipment; current liabilities; noncurrent liabilities; revenues; selling expenses; and so forth. Comparative financial statements present several years of financial information side by side for ease of recognizing trends and changes in amounts. Consolidated financial statements present combined information for the parent company and all subsidiaries. Dollar & Percentage Changes Trend Percentages Component Percentages Ratios Tools of Analysis In order to compare companies or to assess the status of a single company, analysts use several different forms of analysis. Analysts use the change in dollar and
