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