CHAPTER 13
Financial Analysis: The Big Picture
Discuss the Need for comparative analysis and identify the tools of financial
statement analysis
♦ Throughout the book we will rely on three types of comparisons to provide
decision usefulness of financial information:
1. Intracompany basis. Comparisons within a company are often useful to
detect changes in financial relationships and significant trends.
2. Intercompany basis. Comparisons with other companies provide insight into
a company’s competitive position
3. Industry averages. Comparisons with industry averages provide information
about a company’s relative position within the industry
♦ Three basic tools are used in financial statement analysis to highlight the
significance of financial statement data:
1. Horizontal analysis
2. Vertical analysis
3. Ratio analysis
Study Objective 4 - Explain and Apply Horizontal Analysis
♦ Horizontal analysis, also known as __________________analysis, is a
technique for evaluating a series of financial statement data over a period of
time.
The purpose of horizontal analysis is to
determine___________________________________.
The increase or decrease can be expressed as either an amount or a percentage.
We can measure all percentage increases or decreases from this base-period
amount with the following formula:
Change Since =CURRENT YEAR AMOUNT – BASE YEAR AMOUNT
Base Period BASE-YEAR AMOUNT
Study Objective 5 - Describe and Apply Vertical Analysis
♦ Vertical analysis, also called ______________________analysis, is a
technique for evaluating financial statement data that expresses each item in a
financial statement as a percent of a base amount.
♦ On a balance sheet we might say that current assets are 22% of total assets.
♦ ________________________is always the base amount in vertical analysis of
a balance sheet.
♦ On an income statement we say that selling expenses are 16% of net sales.
♦ ________________________