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Financial Statement Analysis Chapter 15

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352 views13 pages

Financial Statement Analysis Chapter 15

Uploaded by

April N. Alfonso
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Financial Statement Analysis

Chapter 15

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
15-2

Limitations of Financial Statement


Analysis
Differences in accounting methods
between companies sometimes make
comparisons difficult.

We use the LIFO method to We use the average cost


value inventory. method to value inventory.
15-3

Limitations of Financial Statement


Analysis
Analysts should look beyond the ratios.
Changes within
Industry the company Consumer
trends tastes

Technological Economic
changes factors
15-4

Statements in Comparative and


Common-Size Form

Dollar and percentage


changes on statements
An item on a financial
statement has little Common-size
meaning by itself. The statements
meaning of the numbers
can be enhanced by
drawing comparisons.
Ratios
15-5

Horizontal Analysis
Calculating Change in Dollar Amounts

Dollar Current Year Base Year


=
Change Figure Figure

The dollar
amounts for
last year
become the
base year
figures.
15-6

Horizontal Analysis
Calculating Change as a Percentage

Percentage Dollar Change


Change
=
Base Year Figure 100%
15-7

Trend Percentages

Trend percentages
state several years
financial data in terms
of a base year, which
equals 100 percent.
15-8

Trend Analysis

Trend = Current Year Amount


Percentage Base Year Amount
100%
15-9

Common-Size Statements
Vertical analysis focuses
on the relationships
among financial
statement items at a
given point in time. A
common-size financial
statement is a vertical
analysis in which each
financial statement item
is expressed as a
percentage.
15-10

Gross Margin Percentage

Gross Margin = Gross Margin


Percentage Sales

This measure indicates how much


of each sales dollar is left after
deducting the cost of goods sold to
cover expenses and provide a profit.
15-11

Financial Leverage
Financial leverage results from the difference between
the rate of return the company earns on investments
in its own assets and the rate of return that the
company must pay its creditors.
15-12

Published Sources That Provide Comparative Ratio Data


15-13

End of Chapter 15

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