Upload
martina-hutchinson
View
215
Download
0
Tags:
Embed Size (px)
Citation preview
Chapter Thirteen
Financial Statement Analysis
McGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Factors in Communicating Useful Information
Users
Types of Decisions Information
Analysis
The primary objective of accounting is to provide information useful for decision making. To provide
information that supports this objective, accountants must consider the following:
13-2
Methods of Analysis
Horizontal Analysis
Vertical Analysis
Ratio Analysis
13-3
Horizontal Analysis
Horizontal analysis (or trend analysis) refers to studying the behavior of individual financial statement items over several
accounting periods.
Absolute Amounts
Percentage Analysis
13-4
Milavec Company Horizontal Analysis
2012 2011
13-5
Vertical Analysis
Vertical analysis Vertical analysis uses uses percentages to compare percentages to compare individual components of individual components of
financial statements to a key financial statements to a key statement figure. Astatement figure. A common- common-
sizesize financial statement is a vertical analysis in which each
financial statement item is expressed as a percentage.
13-6
Vertical Analysis of Income Statement
In income statements, all
items are usually
expressed as a percentage of
sales.
13-7
Milavec Company Vertical Analysis
2012 2011
13-8
Vertical Analysis of Balance Sheet
In balance sheets, all items
are usually expressed as a percentage of total assets.
13-9
Ratio Analysis
Ratio analysis involves studying
various relationships
between different items reported in a
set of financial statements.
13-10
Liquidity Ratios
Liquidity ratios indicate a company’s ability to pay short-term debts. They focus on current assets and current
liabilities.
1. Working capital
2. Current ratio
3. Quick ratio
4. Accounts receivable ratios
5. Inventory ratios
13-11
Solvency Ratios
Solvency ratios are used to analyze a company’s long-term debt-
paying ability and its financing structure.
1. Debt to assets ratio
2. Debt to equity ratio
3. Number of times interest earned
4. Plant assets to long-term liabilities
13-12
Profitability Ratios
Profitability ratios measure a company’s ability to generate
earnings.
1. Net margin (or return on sales)
2. Asset turnover ratio
3. Return on investment
4. Return on equity
13-13
Stock Market Ratios
Stock market ratios analyze the earnings and dividends of a
company.
1. Earnings per share
2. Book value per share
3. Price-earnings (P E) ratio
4. Dividend yield
13-14
Limitations of Financial Statement Analysis
Different Industries
Changing Economic
Environment
Accounting Principles
13-15
End of Chapter Thirteen
13-16