Chapter14 - BUSI1002KLT, 07/08 1 FINANCIAL STATEMENT...

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Unformatted text preview: BUSI1002KLT, 07/08 1 FINANCIAL STATEMENT ANALYSIS Chapter 14 BUSI1002KLT, 07/08 2 Internal Users External Users Financial statement analysis helps users make better decisions. Managers Officers Internal Auditors Shareholders Lenders Customers Purpose of Analysis BUSI1002KLT, 07/08 3 Growt h in sales Return to stockhol ders Profit mar gins Return on equity Determi ned by analyzing the financial statemen ts. Fina nci al me asur es are often use d to rank corp orate perf orma nce. Exa mp les of me asur es includ e: Purpose of Analysis BUSI1002KLT, 07/08 4 Res ults in stand ardi zed, me ani ngf ul sub totals. Items wi th certai n cha ract eristics are grou ped toge ther. Classi fied Financ ial Stateme nts Hel ps identify significant chan ges and trends. Amo unts from sever al years appe ar side by side. Co mp arat ive Fina nci al Sta teme nts Present ed as if the two comp anies are a single business unit. Information for the parent and subsidiary are presented. Co nso lidated Fina nci al Stat eme nts Financial Statements Are Designed for Analysis BUSI1002KLT, 07/08 5 Learning Objective LO1 To explain the uses of dollar and percentage changes, trend percentages, component percentages and ratios. BUSI1002KLT, 07/08 6 Dollar & Percentage Changes Trend Percentages Component Percentages Ratios Tools of Analysis BUSI1002KLT, 07/08 7 Examines a single company to identify trends over time. Financial statement analysis using comparisons. Time series analysis Comparison with similar companies Tools of Analysis BUSI1002KLT, 07/08 8 Company A Company B Provides insights concerning a companys relative performance. Financial statement analysis is based on comparisons. Time series analysis Comparison with similar companies Tools of Analysis BUSI1002KLT, 07/08 9 Tools of Analysis Financial statement analysis begins with knowledge of the company and its industry. Common-size and trend analyses provide convenient ways to organize financial statement information so that major financial components and changes are easily recognized. There is no single correct way to compute many financial ratios. Financial ratios may not provide the answers, but they can help you ask the right questions. BUSI1002KLT, 07/08 10 Dollar Change: Analysis Period Amount Base Period Amount Dollar Change = Percentage Change: Dollar Change Base Period Amount Percent Change = % % Dollar and Percentage Changes BUSI1002KLT, 07/08 11 Dollar and Percentage Changes Sales and earnings should increase at more than the rate of inflation. In measuring quarterly changes, compare to the same quarter in the previous year. Percentages may be misleading when the base amount is small. Evaluating Percentage Changes in Sales and Earnings BUSI1002KLT, 07/08 12 Lets look at the asset Lets look at the asset section of Clover, Inc....
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Chapter14 - BUSI1002KLT, 07/08 1 FINANCIAL STATEMENT...

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