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Unformatted text preview: Analysis of Financial Statements Chapter 17 Balance Sheet Balance Sheet Income Statement Tools of Analysis Horizontal Analysis Vertical Analysis Ratio Analysis Liquidity and Efficiency Solvency Profitability Horizontal Analysis (Trend Analysis) Current year amount Previous year amount Previous year amount This is not the approach used for Trend Analysis by in textbook (Common Size Statements) Analysis amount Base amount Vertical Analysis Ratio Analysis Liquidity and Efficiency Current ratio = Current assets Current liabilities Ratio Analysis Liquidity and Efficiency Days' sales in inventory = Inventory x 365 COGS Ratio Analysis Solvency Debt ratio = Total liabilities Total assets Ratio Analysis Profitability Profit margin ratio = Net income Net sales Ratio Analysis Profitability Return on total assets = Net income Avg. total assets Example Sales Expen...
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