Notes_Chapter_16

# Notes_Chapter_16 - CHAPTER 16 Financial Statement Analysis...

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CHAPTER 16: Financial Statement Analysis I. FINANCIAL STATEMENT ANALYSIS What is Financial Statement Analysis? There are three basic tools of analysis: horizontal, vertical, and ratio analysis. A. HORIZONTAL ANALYSIS (aka Trend Analysis) a technique for evaluating a series of financial statement data over multiple time periods can be expressed as either a dollar amount or a percentage to look at trend over time, select a base year; changes are expressed as percentages of the base year amount. Example: B. VERTICAL ANALYSIS (Common Size Statements) Vertical analysis expresses each item within a financial statement as a percent of a base amount. Generally, the base amount is: For the BALANCE SHEET : For the INCOME STATEMENT : 1

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- Ratios express the mathematical relationship between two or more financial variables II. RATIO ANALYSIS—A closer look. Note: the formulas under “II. Ratio Analysis” will be provided on the exam. A. Ratio Analysis: Profitability 1. Earnings per share: measures the amount of net income earned on each share of common stock. g Outstandin Shares common Average dividends stock Preferred - income Net = share per Earnings 2. P rice-earnings ratio: measures the ratio of market price per share of common stock to earnings per share. Reflects an assessment of a company's earnings from the perspective of the stock market. Price-earnings ratio = Stock price per share Earnings per share 3. Dividend payout ratio: measures the percentage of earnings distributed in the form of cash dividends. Share
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Notes_Chapter_16 - CHAPTER 16 Financial Statement Analysis...

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