Week 12: financial statement analysis
Learning objective 1: preform
Preform basic (horizontal, trend, and vertical) analysis of financial
statement
Horizontal analysis
study the percentage from year to year
Two step to compute
1. Compute amount of change from one period (base period) to the next
2. Divide the amount of change by the base-period amount
Step 1: amount
CHF 87,088m –
CHF 84,343m =
CHF 2,745m
Step 2:
percentage
CHF 2,745m/ CHF
84,343m x 100%
= 3.25%
Trend analysis
Trend percentage
Form of horizontal analysis
Indicate the direction a business is taking
Select a base year and set it equal to 100%
Amount of each following year stated as a percentage of the base amount
, Vertical analysis
Shows the relationship of financial statement item to its base
All items reported as a percentage of the base
Income statement usually use net revenue as base
1. Balance sheet usually use total assets as base
Learning objective 2: prepare
Prepare common-size financial statements
Benchmarking
= comparing one company to another, usually they are direct competitors
Common-size financial statements = a way to compare your company to another
company in way that is still accurate even though the other company might be
bigger
use percentage
Learning objective 3: preform
Preform financial ratio analysis to make a business decision
Ratio expresses the relationship of one number to the other
4 financial ratio’s
1. Efficiency ratio
2. Financial strength ratios
a. Short-term indicators
b. Long-term indicators
3. Profitability ratio
4. Investment ratio
Learning objective 1: preform
Preform basic (horizontal, trend, and vertical) analysis of financial
statement
Horizontal analysis
study the percentage from year to year
Two step to compute
1. Compute amount of change from one period (base period) to the next
2. Divide the amount of change by the base-period amount
Step 1: amount
CHF 87,088m –
CHF 84,343m =
CHF 2,745m
Step 2:
percentage
CHF 2,745m/ CHF
84,343m x 100%
= 3.25%
Trend analysis
Trend percentage
Form of horizontal analysis
Indicate the direction a business is taking
Select a base year and set it equal to 100%
Amount of each following year stated as a percentage of the base amount
, Vertical analysis
Shows the relationship of financial statement item to its base
All items reported as a percentage of the base
Income statement usually use net revenue as base
1. Balance sheet usually use total assets as base
Learning objective 2: prepare
Prepare common-size financial statements
Benchmarking
= comparing one company to another, usually they are direct competitors
Common-size financial statements = a way to compare your company to another
company in way that is still accurate even though the other company might be
bigger
use percentage
Learning objective 3: preform
Preform financial ratio analysis to make a business decision
Ratio expresses the relationship of one number to the other
4 financial ratio’s
1. Efficiency ratio
2. Financial strength ratios
a. Short-term indicators
b. Long-term indicators
3. Profitability ratio
4. Investment ratio
