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# Financial Statement Analysis - PowerPoint PPT Presentation

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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## PowerPoint Slideshow about 'Financial Statement Analysis' - berdine

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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

Horizontal Analysis

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

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

Horizontal Analysis – Balance Sheet

20A is the base year

\$12,000 – \$23,500 = \$(11,500)

(\$11,500 ÷ \$23,500) × 100% = 48.9%

Horizontal Analysis– Income Statement

\$520,000 – \$480,000 = \$40,000

\$40,000 ÷ \$480,000) × 100% = 8.3%

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.

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%

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

Trend Analysis

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.

Common-Size Statements

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