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How To Read, Analyze, and Interpret Financial Reports
How To Read, Analyze, and Interpret Financial Reports
How To Read, Analyze, and Interpret Financial Reports
and Interpret
Financial Reports
How to Read, Analyze, and Interpret
Financial Reports
How
much the
company
owes
Liabilities
+
Owner’s
How Assets = Equity How
much the much the
company owner is
owns worth
Figure 1 - Elements of the Balance Sheet
* Due to rounding
Figure 6 - Horizontal Analysis
Income Statement
FLINT COMPANY
Comparative Income Statement
For Years Ended December 31, 2008 and 2009
2009 2008 Increase (decrease)
Amount Percent
Sales $ 90,000 $80,000 $10,000
Sales returns and allowances 2,000 2,000 0
Net Sales $88,000 $78,000 $10,000 + 12.82
Cost of merchandise sold 45,000 40,000 5,000 + 12.50
Gross profit from sales $43,000 $38,000 $ 5,000 + 13.16
Operating expenses:
Depreciation $ 6,000 $ 5,000 $ 1,000 + 20.00
Selling and Advertising 16,000 12,000 4,000 + 33.33
Research 600 1,000 (400) - 40.00
Miscellaneous 1,200 500 700 + 140.00
Total operating expenses $23,800 $18,500 $ 5,300 + 28.65
Income before interest and taxes $19,200 $19,500 $ (300) - 1.54
Interest expense 4,000 4,000 0
Income before taxes $15,200 $15,500 $ (300) - 1.94
Provision for taxes 3,800 4,000 (200) - 5.00
Net income $11,400 $11,500 $ (100) - .87
Completing a Trend Analysis
Analyzes the changes that occur by expressing
each number as a percent of the base year
Each Item
Base Amount
Profitability ratios
Debt Management ratios
The company’s
profitability picture The company’s debt
situation
Summary of Key Ratios
Current ratio = Current assets
Current liabilities
Industry average, 2 to 1