In this chapter students will be able to: Identify the need for, and tools of, financial statement analysis, explain and apply horizontal analysis, explain and apply vertical analysis, identify and use ratios to analyze liquidity, identify and use ratios to analyze solvency, identify and use ratios to analyze profitability, recognize the limitations of financial statement analysis. | Financial Statement Analysis Basics of financial statement analysis Comparative analysis Tools of analysis Horizontal analysis Balance sheet Income statement Vertical analysis Balance sheet Income statement Ratio analysis Liquidity, solvency and profitability ratios Limitations of financial statement analysis Copyright John Wiley & Sons Canada, Ltd. 2 CHAPTER 18: Financial Statement Analysis Identify the need for, and tools of, financial statement analysis. Explain and apply horizontal analysis. Explain and apply vertical analysis. Identify and use ratios to analyze liquidity. Identify and use ratios to analyze solvency. Identify and use ratios to analyze profitability. Recognize the limitations of financial statement analysis. Copyright John Wiley & Sons Canada, Ltd. 3 Basics of Financial Statement Analysis Comparing financial statement information of a company can be done: On an intracompany basis: compare current year with prior years On an intercompany basis: with other competing companies Based on industry averages Important to also review other financial and non-financial information Copyright John Wiley & Sons Canada, Ltd. 4 Tools of Analysis Commonly used tools to evaluate financial data: Horizontal analysis: evaluate a series of data over a period of time Vertical analysis: evaluate data as a percentage of a total amount Ratio analysis: expresses the relationship among selected financial data within the same period Copyright John Wiley & Sons Canada, Ltd. 5 CHAPTER 18: Financial Statement Analysis Identify the need for, and tools of, financial statement analysis. Explain and apply horizontal analysis. Explain and apply vertical analysis. Identify and use ratios to analyze liquidity. Identify and use ratios to analyze solvency. Identify and use ratios to analyze profitability. Recognize the limitations of financial statement analysis. Copyright John Wiley & Sons Canada, Ltd. 6 Compares a series of financial data To determine the increase or decrease over . | Financial Statement Analysis Basics of financial statement analysis Comparative analysis Tools of analysis Horizontal analysis Balance sheet Income statement Vertical analysis Balance sheet Income statement Ratio analysis Liquidity, solvency and profitability ratios Limitations of financial statement analysis Copyright John Wiley & Sons Canada, Ltd. 2 CHAPTER 18: Financial Statement Analysis Identify the need for, and tools of, financial statement analysis. Explain and apply horizontal analysis. Explain and apply vertical analysis. Identify and use ratios to analyze liquidity. Identify and use ratios to analyze solvency. Identify and use ratios to analyze profitability. Recognize the limitations of financial statement analysis. Copyright John Wiley & Sons Canada, Ltd. 3 Basics of Financial Statement Analysis Comparing financial statement information of a company can be done: On an intracompany basis: compare current year with prior years On an intercompany basis: with other competing
