1/2/23, 6:19 PM Accounting II Analysis

Accounting II   --- Review of concepts --- search

Foreword
1 Concepts
2 Partnerships Accounting II  ©
3 Corporations
4 Capital
5 Liabilities
6 Consolidation
7 Cahs flow © 1989 John Petroff
-> 8 Analysis
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9 Management accounti
10 Cost accounting
11 Budgets
12 Unit costs
Chapter 8:
13 Cost-volume-profit
14 Investment analysis

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FINANCIAL STATEMENT ANALYSIS

INTRO TO FINANCIAL STATEMENT ANALYSIS

Financial statement analysis provides information to those interested in the
financial condition and operating results of a company. When financial
statement items are considered individually, they usually will have a limited
significance. A better perspective is gained when comparisons are made with
previous statements, other businesses and industry averages. The main
purpose of conducting financial analysis is to measure profitability and
solvency. A business which is not able to make interest payments will
experience difficulty in obtaining credit. This could lead either to reduced
profitability or bankruptcy. A company with lower than average earnings may
also find credit harder and more expensive to obtain.

ANALYTICAL PROCEDURES
Most analytical measures are expressed as percentages or ratios. This allows
easy comparison with other businesses regardless of size. Horizontal and
vertical analyses express entire financial statements in percentages. The
horizontal analysis is an analysis of the rate of change in items of financial
statements form year to year. The vertical (or common size) analysis
presents each item as a percentage of total assets for the balance sheet and
sales for income statement. When using these analytical measures, one
should take the following factors into consideration: 1) industry trends, 2)
changes in price levels, and 3) future economic conditions.

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