47:
797:
Vertical or common-size analysis reduces all items on a statement to a "common size" as a percentage of some base value which assists in comparability with other companies of different sizes. As a result, all Income
Statement items are divided by Sales, and all Balance Sheet items are divided by
793:
Comparing financial ratios is merely one way of conducting financial analysis. Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount. For example, a group of items can be expressed as a percentage of net income. When
738:- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.
824:
Seasonal factors may prevent year-end values from being representative. A ratio's values may be distorted as account balances change from the beginning to the end of an accounting period. Use average values for such accounts whenever
820:
One ratio holds little meaning. As indicators, ratios can be logically interpreted in at least two ways. One can partially overcome this problem by combining several related ratios to paint a more comprehensive picture of the firm's
801:
Another method is comparative analysis. This provides a better way to determine trends. Comparative analysis presents the same information for two or more time periods and is presented side-by-side to allow for easy analysis.
657:
and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Financial analysis may determine if a business will:
817:
They say little about the firm's prospects in an absolute sense. Their insights about relative performance require a reference point from other time periods or similar firms.
708:- its ability to earn income and sustain growth in both the short- and long-term. A company's degree of profitability is usually based on the
311:
296:
692:
Make other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.
953:
794:
proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis.
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779:- Using historical figures and certain mathematical and statistical techniques, including present and future values, This
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is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects.
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Financial ratios are no more objective than the accounting methods employed. Changes in accounting
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Acquire or rent/lease certain machineries and equipment in the production of its goods;
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773:- Across historical time periods for the same firm (the last 5 years for example),
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Assessment of the viability, stability, and profitability of a business
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Continue or discontinue its main operation or part of its business;
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1018:
ACIIA – Association of
Certified International Investment Analysts
701:
Financial analysts often assess the following elements of a firm:
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and other techniques, that make use of information taken from
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Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007).
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443:
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EFFAS – European
Federation of Financial Analysts Societies
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It is performed by professionals who prepare reports using
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910:(12th ed.). Hoboken, NJ: John Wiley & Sons, p. 1320
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or choices can yield drastically different ratio values.
1012:
712:, which reports on the company's results of operations;
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Make decisions regarding investing or lending capital;
872:Financial risk management § Corporate finance
1029:
1013:SFAF – the French Society of Financial Analysts
604:
884:(Fundamental basis of financial statements)
312:International Financial Reporting Standards
664:Make or purchase certain materials in the
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732:, while satisfying immediate obligations;
722:and other third parties in the long-term;
742:Both 2 and 3 are based on the company's
718:- its ability to pay its obligation to
1030:
696:
946:Corporate Finance: A Focused Approach
867:Financial modeling § Accounting
813:face several theoretical challenges:
302:Generally-accepted auditing standards
728:- its ability to maintain positive
317:International Standards on Auditing
13:
944:Ehrhardt, M., Brigham, E. (2008).
789:- Comparison between similar firms
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754:Financial analysts often compare
374:Notes to the financial statements
322:Management Accounting Principles
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297:Generally-accepted principles
964:Kieso, et al., 2007, p. 1319
935:Kieso, et al., 2007, p. 1320
926:Kieso, et al., 2007, p. 1320
628:financial statement analysis
7:
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10:
1054:
888:Managerial risk accounting
18:
1003:Resources in your library
166:Constant purchasing power
63:Constant purchasing power
893:
678:or negotiate for a bank
497:Accounting organizations
485:People and organizations
19:Not to be confused with
908:Intermediate Accounting
787:Comparative Performance
245:Amortization (business)
848:Economic base analysis
806:Theoretical challenges
369:Management discussion
853:Financial accounting
781:extrapolation method
655:financial statements
336:Financial statements
289:Accounting standards
1038:Valuation (finance)
877:Financial statement
697:Firm-level analysis
636:analysis of finance
632:accounting analysis
562:Earnings management
532:Positive accounting
406:Double-entry system
396:Bank reconciliation
201:Revenue recognition
994:Financial analysis
948:(3rd ed.). p. 131
862:Cash flow forecast
858:Financial forecast
843:Business valuation
777:Future Performance
642:, sub-business or
624:Financial analysis
537:Sarbanes–Oxley Act
472:Sarbanes–Oxley Act
401:Debits and credits
236:Cost of goods sold
191:Matching principle
989:Library resources
954:978-0-324-65568-1
766:, growth, etc.):
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582:Two sets of books
577:Off-balance-sheet
219:Selected accounts
156:Accounting period
21:Economic analysis
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974:Financial Ratios
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771:Past Performance
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710:income statement
682:to increase its
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186:Historical cost
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58:Historical cost
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502:Luca Pacioli
423: /
243: /
241:Depreciation
149:Key concepts
121:Governmental
666:manufacture
515:Development
492:Accountants
388:Bookkeeping
307:Convergence
265:Liabilities
196:Materiality
84:Major types
750:Techniques
550:Misconduct
176:Fair value
126:Management
68:Management
39:Accounting
825:possible.
736:Stability
730:cash flow
726:Liquidity
720:creditors
572:Hollywood
452:Financial
354:Cash-flow
111:Financial
1032:Category
837:See also
830:policies
760:solvency
716:Solvency
640:business
557:Creative
527:Research
457:Internal
444:Auditing
260:Goodwill
255:Expenses
106:Forensic
31:a series
29:Part of
674:Issue
644:project
522:History
416:Journal
275:Revenue
161:Accrual
991:about
952:
914:
860:&
676:shares
651:ratios
467:Report
421:Ledger
364:Income
359:Equity
270:Profit
250:Equity
226:Assets
131:Social
96:Budget
894:Notes
634:, or
462:Firms
91:Audit
950:ISBN
912:ISBN
758:(of
680:loan
231:Cash
116:Fund
101:Cost
646:.
136:Tax
73:Tax
1034::
762:,
630:,
33:on
686:;
612:e
605:t
598:v
23:.
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.
