FINANCIAL
STATEMENT
ANALYSIS
CHAPTER 15
Teacher Version
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Financial Statement Analysis: Interpreting Balance Sheet & Income Statement, Lecture notes of Financial Statement Analysis
Locate the Consolidated Statements of Income. Perform the vertical analysis showing each item through Net Income as a % of Gross Margin. Round ...
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FINANCIAL
STATEMENT
ANALYSIS
CHAPTER 15
Teacher Version
Interpret the Balance Sheet
Assessment of assets are important to creditors & prospective investors. Provides a basis for judging if resources are sufficient enough to continue operations. What assets can be sold for cash Debt vs sources of cash Selling assets might fail to cover debt Equity: any creditors claims legally come before owners’ claims.
3 Basic Types of Analytical
Methods
Horizontal Vertical Ratio
Horizontal Analysis
Percentage analysis of increases and decreases in related items in comparative financial statements. Trend analysis used to compare changes in operating results from year to year. $ amount and % Can be done for specific line items
Nike, Inc.
Locate the Annual Report for Nike in appendix C. Locate the Consolidated Statements of Income. Calculate the $ increase and % increase in the net sales (Gross Margin)using 2008 as the base year. $: 217 m %: 2.6%
Vertical Analysis
The Percentage analysis of the relationship of each component in a financial statement to a total within the statement. Each asset item is stated as a % of total assets Each liability & stockholders’ equity item is stated as a % of the total liabilities & stockholders’ equity.
Nike, Inc.
Locate the Annual Report for Nike in appendix C. Locate the Consolidated Statements of Income. Perform the vertical analysis showing each item through Net Income as a % of Gross Margin. Round to one decimal place.
Other Analytical Measures
Ratios and percentages Compared within the same statement Not a definitive conclusion Guide in evaluating financial and operating data Trends in the industry are considered General economic conditions are considered
Turn to page 718 for the list and purpose of each measurement.