Essay On Financial Statement Analysis

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The four basic financial statement analysis procedures are horizontal, percentage, vertical, and ratio (Edmonds, Tsay, & Olds, 2011). The first basic financial statement analysis procedure is horizontal analysis or also referred to as trend analysis. Horizontal analysis is used to study the behavior of individual financial statement items over several accounting periods. Likewise, horizontal analysis is the comparison of financial information of a company with past financial information of the same company over a number of reporting periods (Edmonds, Tsay, & Olds, 2011). Furthermore, this analysis focuses on trends in either absolute dollar amounts for the item or in percentages. Moreover, the absolute dollar amounts may be used to evaluate…show more content…
Thus, users utilizing this analysis are concerned with how amounts change over time. “An example given indicates that a user may observe that revenue increased from one period to the next by $42 million, which would be the absolute dollar amount or that it increased by 15 percent which would be shown in a percentage amount” (Edmonds, Tsay, & Olds, 2011, p. 589). The main purpose of this analysis is to see if the numbers are higher or lower in comparison with past records or trends which may be used to investigate any causes for concerns. Therefore, it is imperative to group together all information and sort it by time periods to see the trends or changes. Furthermore, when the analysis is handled for all financial statements at the same time, the overall impact of functioning activities can be seen on the company’s financial condition during the period under review. Likewise, horizontal analysis has the…show more content…
This is conducted on financial statements for a single time period only. As with horizontal analysis, it compares items over many time periods. In contrast, vertical analysis only compares many items within the same time period. Likewise, vertical analysis of an income statement or also called a common size statement involves converting each income statement component into a percentage of sales. Additionally, while every item on a balance sheet is expressed as a percentage of total assets held by the company.Moreover, vertical analysis utilizes percentages to compare individual components of financial statements to a key statement figure. Vertical analysis entails changing each income statement element to a percentage of sales. Furthermore, vertical analysis recommends analyzing only one period, however, it can be quite beneficial to compare common size income statements for several

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