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Vertical Analysis

11 . 5. Vertical Analysis. Is a technique for evaluating financial statement data that expresses each item in a financial statement as a percent of a base amount. Total assets is the base amount in vertical analysis of a balance sheet.

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Vertical Analysis

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  1. 11 5 Vertical Analysis • Is a technique for evaluating financial statement data that expresses each item in a financial statement as a percent of a base amount. • Total assets is the base amount in vertical analysis of a balance sheet. • Net sales is the base amount in vertical analysis of an income statement.

  2. Vertical Analysis - Balance Sheet

  3. Intercompany Comparison by Vertical Analysis

  4. a.net sales. b.depreciation expense in a previous year. c. gross profit. d.fixed assets. Review In vertical analysis, the base amount for depreciation expense is generally:

  5. a.net sales. b.depreciation expense in a previous year. c. gross profit. d.fixed assets. Review In vertical analysis, the base amount for depreciation expense is generally:

  6. 11 6 Ratio Analysis

  7. Ratios • Three types: • Liquidity ratios • Solvency ratios • Profitability ratios • Can provide clues to underlying conditions that may not be apparent from an inspection of the individual components. • Single ratio by itself is not very meaningful.

  8. Liquidity Ratios Measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash. WHO CARES? Short-term creditors such as bankers and suppliers

  9. Liquidity Ratios

  10. Solvency Ratios Measure the ability of the enterprise to survive over a long period of time WHO CARES? Long-term creditors and stockholders

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