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Chap13MAF3ePartI

Chap13MAF3ePartI - Financial and Managerial Accounting...

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Financial and Managerial Accounting Analyzing Financial Statements – Part I McGraw-Hill/Irwin         
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Application of analytical tools Involves transforming data Reduces uncertainty Basics of Analysis
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Internal Users External Users Financial statement analysis helps users make better decisions. Managers Officers Internal Auditors Shareholders Lenders Customers Purpose of Analysis
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Liquidity and Efficiency Solvency Profitability Market Prospects Ability to meet short-term obligations and to efficiently generate revenues Ability to generate future revenues and meet long-term obligations Ability to generate positive market expectations Ability to provide financial rewards sufficient to attract and retain financing Building Blocks of Analysis 13-4
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Horizontal Analysis Comparing a company’s financial condition and performance across time. Tools of Analysis Comparing a company’s financial condition and performance to a base amount. Vertical Analysis Measurement of key relations between financial statement items 13-5
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CLOVER CORPORATION Comparative (Partial) Balance Sheet December 31, 2009 2009 2008 Dollar Change Percent Change Assets Current assets: Cash and equivalents 12,000 $ 23,500 $ Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200 Total current assets 155,000 $ 164,700 $ Property and equipment: Land 40,000 40,000 Buildings and equipment, net 120,000 85,000 Total property and equipment 160,000 $ 125,000 $ Total assets 315,000 $ 289,700 $ Horizontal Analysis 13-6
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Calculate Change in Dollar Amount Dollar Change Analysis Period Amount Base Period Amount = Since we are measuring the amount of the change between 2009 and 2008, the dollar amounts for 2008 become the “base” period amounts. Comparative Statements – Horizontal Analysis Calculate Change as a Percent Percent Change Dollar Change Base Period Amount 100 = × 13-7
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CLOVER CORPORATION Comparative (partial) Balance Sheet December 31, 2009 2009 2008 Dollar Change Percent Change* Assets Current assets: Cash and equivalents 12,000 $ 23,500 $ (11,500) $ (48.9) Accounts receivable, net 60,000 40,000 Inventory 80,000 100,000 Prepaid expenses 3,000 1,200 1,800 Total current assets 155,000 $ 164,700 $ Property and equipment: Land 40,000 40,000 - 0.0 Buildings and equipment, net 120,000 85,000 Total property and equipment 160,000 $ 125,000 $ Total assets 315,000 $ 289,700 $ * Percent rounded to first decimal point. ($11,500 ÷ $23,500) × 100 = 48.9% $12,000 – $23,500 = $(11,500) 13-8
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CLOVER CORPORATION Comparative (Partial) Balance Sheet December 31, 2009 2009 2008 Dollar Change Percent Change* Assets Current assets: Cash and equivalents 12,000 $ 23,500 $ (11,500) $ (48.9) Accounts receivable, net 60,000 40,000 20,000 50.0 Inventory 80,000 100,000 (20,000) (20.0) Prepaid expenses 3,000 1,200 1,800 150.0 Total current assets 155,000 $ 164,700 $ (9,700) $ (5.9) Property and equipment: Land 40,000 40,000 - 0.0 Buildings and equipment, net 120,000 85,000 35,000 41.2 Total property and equipment 160,000 $ 125,000 $ 35,000 $ 28.0 Total assets 315,000 $ 289,700 $ 25,300 $ 8.7 * Percent rounded to first decimal point.
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