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  • Analysis and Interpretation of Fs Part1

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    This document discusses analyzing financial statements through horizontal and vertical analysis. Horizontal analysis involves comparing financial statement data over multiple periods to analyze trends, expressed in monetary and percentage changes. Vertical analysis expresses each financial statement item as a percentage of a base amount, such as total assets for the balance sheet and net sales for the income statement, to infer composition and profitability. The objectives are to evaluate performance, financial health, risks, and future prospects by subjecting financial data to computational techniques for economic decision making.

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    This document discusses analyzing financial statements through horizontal and vertical analysis. Horizontal analysis involves comparing financial statement data over multiple periods to analyze trends, expressed in monetary and percentage changes. Vertical analysis expresses each financial statement item as a percentage of a base amount, such as total assets for the balance sheet and net sales for the income statement, to infer composition and profitability. The objectives are to evaluate performance, financial health, risks, and future prospects by subjecting financial data to computational techniques for economic decision making.

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    © All Rights Reserved
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    10 views20 pages

    Analysis and Interpretation of Fs Part1

    Uploaded by

    iza
    This document discusses analyzing financial statements through horizontal and vertical analysis. Horizontal analysis involves comparing financial statement data over multiple periods to analyze trends, expressed in monetary and percentage changes. Vertical analysis expresses each financial statement item as a percentage of a base amount, such as total assets for the balance sheet and net sales for the income statement, to infer composition and profitability. The objectives are to evaluate performance, financial health, risks, and future prospects by subjecting financial data to computational techniques for economic decision making.

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    of 20

    ANALYSIS AND

    INTERPRETATION OF
    FINANCIAL
    STATEMENTS

    PART 1
    LEARNING OBJECTIVES
    At the end of the discussion, the learners are
    able to:

    Perform vertical and horizontal analyses of


    financial statements of a sole proprietorship.
    https://d28wu8o6itv89t.cloudfront.net/images/FinancialStatementAnalysisjpg-
    1586758881516.jpeg
    https://opentextbooks.uregina.ca/app/uploads/sites/18/2020/08/image32.
    jpeg
    FINANCIAL
    STATEMENT
    ANALYSIS
    Is the process of
    evaluating risks,
    performance, financial
    health, and future
    prospects of a
    business by subjecting
    financial statement
    data to computational
    and analytical
    techniques with the
    objective of making
    economic decisions.
    https://i.ytimg.com/vi/IwCuw2Rx7v4/hqdefault.jpg
    https://i.investopedia.com/dimages/graphics/horizontal_analysis_0.png
    HORIZONTAL ANALYSIS
    • Also called trend
    analysis
    • A technique for
    evaluating a series of
    financial statement data
    over a period of time
    • Purpose is to determine
    the increase or
    decrease that has taken
    place. https://encrypted-
    tbn0.gstatic.com/images?q=tbn:ANd9GcT8YVU65P
    tOcAen8F82biLKCzUonqcbtk5z4wmWttaolBd3jblW
    aPOGvX_KJtJB7lI4UsI&usqp=CAU
    HORIZONTAL ANALYSIS
    • Uses financial statements of two or
    more periods.
    • Changes can be expressed in
    monetary value and percentages
    https://cdn.educba.com/academy/wp-content/uploads/2020/01/Horizontal-
    Analysis-Formula.jpg
    https://images.slideplayer.com/36/10619618/slides/slid
    e_13.jpg
    VERTICAL ANALYSIS
    • Also called
    common-size
    analysis
    • A technique that
    expresses each
    financial statement
    item as percentage
    of a base amount
    VERTICAL ANALYSIS
    • For the Statement of Financial Position,
    the base amount is TOTAL ASSETS
    • From the common-size FS, the analyst
    can infer the composition of assets and
    the company’s financing mix.
    VERTICAL ANALYSIS
    • For the Statement of Comprehensive
    Income, the base amount is NET SALES
    • This will reveal how “Net Sales” is used
    up by various expenses.
    • Net income as a percentage of sales is
    also known as the net profit margin.
    https://media.cheggcdn.com/media/c71/c7152cfa-c7ef-4f97-aa9c-
    e29f767ec297/phpd2iHnk.png
    https://i.vimeocdn.com/video/1152754206
    ?mw=900&mh=506

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