# ch18tif_18 - CHAPTER 18 Financial Statement Analysis...

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Chapter 6 / Exercise 34
Business Analytics: Data Analysis & Decision Making
Albright/Winston
Expert Verified
CHAPTER 18Financial Statement AnalysisLEARNING OBJECTIVES1.Perform a horizontal analysis of comparative financial statements.2.Perform a vertical analysis of comparative financial statements.3.Prepare and use common-size financial statements.4.Compute the standard financial ratios.5.Measure economic value added.TRUE/FALSE1.Horizontal analysis is the study of percentage changes in comparative financial statements.TrueL.O. 1EasyPage: 7122.Trend percentages are a form of horizontal analysis.True
L.O. 1EasyPage: 7123.It is generally considered more useful to know the percentage change in financial statement amounts from year to year than to know the absolute dollar amount of their change.
L.O. 1ModeratePage: 7124.Horizontal analysis is the study of the dollar amount of changes and/or the percentage changes in financial statement balances from one year to the next.
L.O. 1EasyPage: 7125.Vertical analysis of a financial statement shows the relationship of each item to its base, which is the 50% figure.
L.O. 2EasyPage: 7126.Vertical analysis of financial statements reveals changes in items on the financial statements over time.
L.O. 2EasyPage: 7157.The base figure on the income statement used for vertical analysis is generally net income.
L.O. 2EasyPage: 715251
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Chapter 6 / Exercise 34
Business Analytics: Data Analysis & Decision Making
Albright/Winston
Expert Verified
8.For the balance sheet, total assets is usually the base when performing vertical analysis.
L.O. 2ModeratePage: 715252
CHAPTER 18Financial Statement Analysis9.Horizontal analysis would be used to determine what is happening to cost of goods sold as a percentage of sales from one year to the next.
L.O. 2ModeratePage: 7159.Benchmarking may be done against an industry average or against a key competitor.True
L.O. 3ModeratePage: 71610.Common-size statements report only percentages.
L.O. 3EasyPage: 71611.Benchmarking is the practice of comparing a company for the current year to the same company for the previous year.
L.O. 3ModeratePage: 71612.Working capital is defined as total assets minus current liabilities.
L.O. 4ModeratePage: 72113.A higher current ratio suggests that a business has sufficient liquid assets to maintain normal business operations.TrueL.O. 4
ModeratePage: 72114.Inventory turnover is the ratio of average inventory to cost of goods sold.
L.O. 4ModeratePage: 721