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Essay / Research Paper Abstract
This 3-page paper discusses various methods of analyzing financial reports. Bibliography lists 1 source.
Page Count:
3 pages (~225 words per page)
File: AS43_MTanlysifi.doc
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Unformatted sample text from the term paper:
these numbers, their positions and the ways in which they are analyzed can provide vital information as to the health of a particular organization. The textbook also points out that
financial statement analysis helps isolate information to help decision-makers make better decisions. In this paper well discuss three methods of analysis: Horizontal, vertical and ratio.
Horizontal analysis is also called trend analysis, and it focuses on analyzing financial statements over a given period of time. That period can range from comparing and contrasting
four quarters in a given year, to analyzing trends over several years. Within this particular analysis, we see two types of tools: Absolute analysis (which compares specific dollar amounts with
one another) and percentage analysis (which focuses on computing, and comparing, percentage relationships, and changes, between two amounts). This information is used to determine trends, based on past performances.
Vertical analysis uses percentages that compare individual components of a financial statement to a key statement period. Vertical analysis is more time-specific; it
compares different items within a same time period. The example the textbook uses of vertical analysis is that of Milavec Co.s statement, in which each income statement component is converted
into a percentage of sales. Many times, these percentages are compared to different years and quarters, but the analysis itself is done within a specific time frame. This analysis is
used to help determine how much a particular component adds to, or takes from, income generated. Finally we have ratio analysis, which
focuses on various relationships between different items in a specific financial statement. The text points out that, for example, net income reported on an income statement could be compared to
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