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FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS. Managers Officers Internal Auditors. Shareholders Lenders Customers. Purpose of Analysis. Financial statement analysis helps users make better decisions. Internal Users. External Users. Need for Comparative Analysis. Intra-company analysis

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FINANCIAL STATEMENT ANALYSIS

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  1. FINANCIAL STATEMENT ANALYSIS

  2. Managers Officers Internal Auditors Shareholders Lenders Customers Purpose of Analysis Financial statement analysis helps users make better decisions. Internal Users External Users

  3. Need for Comparative Analysis • Intra-company analysis • Compare one item in the current year with same item from previous year/s (Detect Changes) • Industry Average • Compare item of a company against industry average (Assess Relative Performance within Industry) • Inter-company analysis • Compare one item of a company with the same item in one/more competing companies (Determine Competitive Position)

  4. Tools of Analysis Comparative Horizontal Analysis Trend Percentages Common-size Vertical Analysis Ratios

  5. Dollar Change: Dollar Change Analysis Period Amount Base Period Amount = – Comparative Horizontal Analysis Percentage Change: % Percent Change Base Period Amount ÷ = Dollar Change

  6. Let’s look at the asset section of Clover, Inc. comparative balance sheet for 2013 and 2012. Compute the dollar change and the percentage change for cash. Comparative Horizontal Analysis

  7. $12,000 – $23,500 = $(11,500)

  8. ($11,500 ÷ $23,500) × 100% = 48.94%

  9. Examine the relative size of each item in the financial statements by computing component(or common-sized) percentages. Analysis Amount Base Amount Common-size Vertical Analysis Common-size Percentage × = 100% Financial Statement Base Amount Balance Sheet Total Assets Income Statement Revenues

  10. ($12,000 ÷ $315,000) × 100% = 3.8% ($23,500 ÷ $289,700) × 100% = 8.1%

  11. Trend Index Analysis Trend analysis is used to reveal patterns in data covering successive periods. Analysis Period Amount Base Period Amount Trend Index × 100% =

  12. Trend Index Berry Products Income Information For the Years Ended December 31, 2003 is the base period so its amounts will equal 100%.

  13. Trend Percentage Analysis Period – Previous Period (Base Period) Previous Period Amount (Base Period) Trend Percentage × = 100%

  14. Trend Percentage Berry Products Income Information For the Years Ended December 31, 2003 is the base period so its amounts will equal 0.

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