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Chapter14 - 1 Chapter 14 FINANCIAL STATEMENT ANALYSIS...

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BUSI1002KLT, 07/08 1 FINANCIAL STATEMENT ANALYSIS Chapter 14
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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
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BUSI1002KLT, 07/08 3 G r o w t h i n s a l e s R e t u r n t o s t o c k h o l d e r s P r o f i t m a r g i n s R e t u r n o n e q u i t y D e t e r m i n e d b y a n a l y z i n g t h e f i n a n c i a l s t a t e m e n t s . F i n a n c i a l m e a s u r e s a r e o f t e n u s e d t o r a n k c o r p o r a t e p e r f o r m a n c e . E x a m p l e s o f m e a s u r e s i n c l u d e : Purpose of Analysis
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BUSI1002KLT, 07/08 4 R e s u l t s i n s t a n d a r d i z e d , m e a n i n g f u l s u b t o t a l s . I t e m s w i t h c e r t a i n c h a r a c t e r i s t i c s a r e g r o u p e d t o g e t h e r . C l a s s i f i e d F i n a n c i a l S t a t e m e n t s H e l p s i d e n t i f y s i g n i f i c a n t c h a n g e s a n d t r e n d s . A m o u n t s f r o m s e v e r a l y e a r s a p p e a r s i d e b y s i d e . C o m p a r a t i v e F i n a n c i a l S t a t e m e n t s P r e s e n t e d a s i f t h e t w o c o m p a n i e s a r e a s i n g l e b u s i n e s s u n i t . I n f o r m a t i o n f o r t h e p a r e n t a n d s u b s i d i a r y a r e p r e s e n t e d . C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s Financial Statements Are Designed for Analysis
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BUSI1002KLT, 07/08 5 Learning Objective LO1 To explain the uses of dollar and percentage changes, trend percentages, component percentages and ratios.
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BUSI1002KLT, 07/08 6 Dollar & Percentage Changes Trend Percentages Component Percentages Ratios Tools of Analysis
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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
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BUSI1002KLT, 07/08 8 Company A Company B Provides insights concerning a company’s relative performance. Financial statement analysis is based on comparisons. Time series analysis Comparison with similar companies Tools of Analysis
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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.
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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
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BUSI1002KLT, 07/08 11 Dollar and Percentage Changes Sales and earnings should increase at more than the rate of inflation.
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