# Financial Statement Analysis - PowerPoint PPT Presentation

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Next Page Click Here. Financial Statement Analysis. Covered here. Analytical techniques used to examine relationships among financial statement items. Horizontal analysis (Dollar and percentage changes on statements) Trend analysis Common-size statements (Vertical analysis)

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Financial Statement Analysis

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### Financial Statement Analysis

Covered here

Analytical techniquesused toexamine relationships among financial statement items

• Horizontal analysis (Dollar and percentage changes on statements)

• Trend analysis

• Common-size statements (Vertical analysis)

• Ratios

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### Horizontal Analysis

Horizontal analysis shows the changes between years in the financial data in both dollar and percentage form.

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Dollar

Change

Current Year

Figure

Base Year

Figure

=

Percentage

Change

Dollar Change

Base Year Figure

×

100%

=

### Horizontal Analysis (using comparative financial statements)

Calculating Change in Dollar Amounts

Calculating Change as a Percentage

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### Horizontal Analysis – Balance Sheet

20A is the base year

\$12,000 – \$23,500 = \$(11,500)

(\$11,500 ÷ \$23,500) × 100% = 48.9%

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### Horizontal Analysis– Income Statement

\$520,000 – \$480,000 = \$40,000

\$40,000 ÷ \$480,000) × 100% = 8.3%

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Trend

Percentage

Current Year Amount

Base Year Amount

×

100%

=

### Trend Analysis

Trend percentages state several years’ financial data in terms of a base year, which equals 100 percent.

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### Trend Analysis

The base year is 2002, and its amounts will equal 100%.

20C Amounts ÷ 20B Amounts × 100% = trend percentage

( \$290,000 ÷ \$275,000 ) × 100% = 105%

( \$198,000 ÷ \$190,000 ) × 100% = 104%

( \$ 92,000 ÷ \$ 85,000 ) × 100% = 108%

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Trend percentages can be used to construct a graph so the trend over time can be seen.

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### Common-Size Statements – Vertical Analysis

Common-size statements use percentages to express the relationship of individual components to a total within a single period.

This approach to financial statement analysis is also known as vertical analysis.

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### Common-Size Statements

Net sales is usually the base and is expressed as 100%.

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