chapter 15.docx - Chapter 15 Financial Statement Analysis Purpose of Analysis Most financial statements cover at least two periods(trends three to five

chapter 15.docx - Chapter 15 Financial Statement Analysis...

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Chapter 15: Financial Statement Analysis Purpose of Analysis Most financial statements cover at least two periods (trends three to five years) Small business owners to measure performance Financial analysts to analyze stock investments Auditors to obtain an overall sense of a company’s financial health Creditor to determine credit risk Or any other person wanting to compare financial data in relevant terms Compare the performance in the following ways: From year to year With a competing company With the same industry as a whole Ways to analyze financial statements: 1. Horizontal analysis- provides a year-to-year comparison of a company’s performance in different periods. 2. Vertical analysis- provides a way to compare different companies 3. Ratio analysis- can be used to provide information about a company’s performance. It is used most effectively to measure a company against other companies in the same industry and to denote trends within the company.
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