Warren_23e__AISE_IM_Ch17 - chapter 17 Financial Statement...

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chapter 17 Financial Statement Analysis ______________________________________________ OPENING COMMENTS This chapter presents techniques for analyzing financial statements and the contents of annual reports. The techniques for analyzing financial statements include horizontal analysis, vertical analysis, and ratio analysis. Since an analytical technique has been presented at the end of most chapters, some of the material presented in Chapter 17 will be a review. When covering this chapter, you should guard against getting bogged down in the calculations surrounding ratio analysis. Try to spend at least as much class time interpreting ratios as calculating them. Emphasize that computing ratios is only the starting point for assessing the performance of a business. To be meaningful, current-year ratios must be compared with ratios from prior years and ratios of other companies in the same industry. The influence of the general economic and business environment should be considered. Finally, sound financial judgment should be applied. After studying the chapter, your students should be able to: 1. Describe basic financial statement analytical methods. 2. Use financial statement analysis to assess the solvency of a business. 3. Use financial statement analysis to assess the profitability of a business. 4. Describe the contents of corporate annual reports. STUDENT FAQS Do we have to memorize all these formulas? Which formulas are the most important? 279 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.
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280 Chapter 17 Financial Statement Analysis This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. What are the top five formulas? Should we use these formulas to tell how a company is doing before we invest in them? These are hard since I did not learn some of this information earlier. What do you suggest I do? What do these formulas really tell us about the company? How do I know if a ratio of fixed assets to long-term liabilities of 3.8 is good or bad? Is vertical or horizontal analysis better? How are some of these ratios related? If a company’s accounts receivable turnover is poor, then won’t the numbers of days’ sales in receivables be poor too? IN-CLASS AND HOMEWORK ASSIGNMENT CHART Number Objective Description Difficulty Time AACSB AICPA SS GL EO17-1 17-1 Easy 5 min Analytic FN-Measurement EO17-2 17-1 Easy 5 min Analytic FN-Measurement EO17-3 17-1 Easy 5 min Analytic FN-Measurement EO17-4 17-1 Easy 5 min Analytic FN-Measurement EO17-5 17-2 Easy 5 min Analytic FN-Measurement EO17-6 17-2 Easy 5 min Analytic FN-Measurement EO17-7 17-2 Easy 5 min Analytic FN-Measurement EO17-8 17-2 Easy 5 min Analytic FN-Measurement
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Warren_23e__AISE_IM_Ch17 - chapter 17 Financial Statement...

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