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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Click HereFinancial Statement Analysis
Analytical techniquesused toexamine relationships among financial statement items
Click HereHorizontal Analysis
Horizontal analysis shows the changes between years in the financial data in both dollar and percentage form.
Base Year Figure
=Horizontal Analysis (using comparative financial statements)
Calculating Change in Dollar Amounts
Calculating Change as a Percentage
Click HereHorizontal Analysis – Balance Sheet
20A is the base year
$12,000 – $23,500 = $(11,500)
($11,500 ÷ $23,500) × 100% = 48.9%
Click HereHorizontal Analysis– Income Statement
$520,000 – $480,000 = $40,000
$40,000 ÷ $480,000) × 100% = 8.3%
Current Year Amount
Base Year Amount
Trend percentages state several years’ financial data in terms of a base year, which equals 100 percent.
Click HereTrend 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%
Trend percentages can be used to construct a graph so the trend over time can be seen.Trend Analysis
Click HereCommon-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.
Click HereCommon-Size Statements
Net sales is usually the base and is expressed as 100%.
20B COGS ÷ 20B Net Sales × 100%
( $360,000 ÷ $520,000 ) × 100% = 69.2%
20A COGS ÷ 20A Net Sales × 100%
( $315,000 ÷ $480,000 ) × 100% = 65.6%Common-Size Statements