Chapter 13

Chapter 13 - Chapter 13 Financial Statement Analysis...

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Chapter 13 Financial Statement Analysis
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Stockholders Financial Statement Analysis Creditors Management Will I be paid? How good is our investment? How are we performing?
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LIFO FIFO Limitations of Financial Statement Analysis Use of different accounting methods Changes in accounting methods
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Limitations of Financial Statement Analysis Failure to recognize trends in ratios Difficulty of making industry comparisons (i.e., conglomerates) ????
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Limitations of Financial Statement Analysis Nonoperating items on income statement Effects of inflation =
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Horizontal Analysis A comparison of financial statement items over a period of time Read right to left to compare one year’s results with the next as a dollar amount of change and as a percentage of change from year to year LO2 % $
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Horizontal Analysis Cash $ 320 $1,350 $(1,030) (76)% Accounts receivable 5,500 4,500 1,000 22 Inventory 4,750 2,750 2,000 73 Prepaid insurance 150 200 (50) (25) Total current assets $10,720 $8,800 $ 1,920 22 December 31 Increase (Decrease) 2008 2007 Dollars Percent Dollar change from year to year Percentage change from one year to the next year
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Trend Analysis Return on Average Equity 2006 2005 2004 2003 23% 23.5% 24.7% 26.7% Wm. Wrigley Jr. Company Tracking items over a series of years
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Vertical Analysis Common-size statements recast items as a percentage of a selected item Allows comparisons of companies of different size Compares percentages across years to identify trends % % % LO3
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This note was uploaded on 04/13/2011 for the course ACCT 2101 taught by Professor Christianwurst during the Spring '08 term at Temple.

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Chapter 13 - Chapter 13 Financial Statement Analysis...

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