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Week 7 CheckPoint - Ratio, Vertical, and Horizontal Analyses

Week 7 CheckPoint - Ratio, Vertical, and Horizontal...

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The financial statement analysis of a company involves three characteristics of a company; their liquidity, profitability, and solvency. In order to determine these characteristics of a company, there are three tools used; the ratio analysis, vertical analysis, and the horizontal analysis. The ratio analysis is used to express “the relationship among selected items of financial statement data” . This analysis can be used to measure a company’s liquidity ratio, profitability ratio, or their solvency ratio. The ratios help us determine some conditions of a company that may not always be apparent when looking at the company’s financial statements. The vertical analysis of a company’s financial statements is also known as the common-size analysis of a company. According to Weygandt, Kimmel, & Kieso (2008) it is “A technique that expresses each financial statement item as a percent of a base amount.” The vertical analysis of a company can be determined by dividing each item on the balance sheet by the total assets of a company, which leaves you with a .XXXX amount which is then transformed into a percentage by moving the decimal point two spaces. The given percentage

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