L03 Financial Statement Analysis

L03 Financial Statement Analysis - For Objectives...

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Financial Statement Analysis For Investors and Creditors
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Profitability Liquidity Solvency Compared to Industry Compared to Competitors Trends over Time Objectives
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Horizontal (Trend) Analysis Analysis of individual accounts and ratios  over time Requires comparative statements In periods of high inflation, requires either  constant dollar adjustments or market  value reporting
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Vertical Analysis All items on a statement are expressed as  a percentage of a specific item on the  same statement Net Sales Total Assets Common size statements Income Statement Net Revenue 1,000 100% COGS     700    70% Gross Profit     300    30% Operating Expenses          250            25% Net Income       50      5% Allows  comparisons  across companies
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Ratio Analysis Reveals key relationships Profitability ratios Liquidity ratios Solvency ratios Permits comparisons across companies  and industries 3M Company Financial Statements
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