ACC 281 Week 1 Assignment, Financial Statement Analysis Methods

ACC 281 Week 1 Assignment, Financial Statement Analysis MethodsFinancial Statement Analysis Methods Name Institution ACC 281 Accounting Concepts for Health Care Professionals Name Financial Statement Analysis Methods Within financial statements, there are three different models which assist organizations with viewing and comparing the profits and loses. Amongst the three analysis Horizontal, Vertical, and ratio, one tends to have a better effect on the financial growth of a business. This effect is caused by how detailed the analysis. After compiling all the pertinent information to prepare a financial statement, it is imperative that a study of the report is appropriately reviewed. Financial statement analysis is based off comparisons over some time and each method has a way to ensure the balance sheet and income statement is accurate. As stated above each practice is essential to growing a business and detail is critical when performing each analysis. Horizontal According to Epstein and Schneider, a horizontal analysis can be used to compare data from multiple periods to show a change in accounts. This type of analysis is done side by side from two different accounting periods which tend to be helpful to find trends within an organization. Using the horizontal method over months can help an organization get the jest of their financial moves in business or for a specific project. In 2019, Bragg found that when performing a horizontal analysis it is beneficial to perform this analysis for the financial statements at the same time to see the full impact of an organization’s finances over the review period. When conducting a horizontal analysis for statements simultaneously, it allows viewing how well or not a company performed. Regarding an income statement and balance sheet Bragg (2019) states this is usually in a two-year format to display the difference between the two years for each line item. Another form commonly used is fitting as many years on a page to view the changes or trends periodically. With seeing an income statement and balance sheet, an accountant can use two different methods to conduct a horizontal financial analysis. Dollar analysis “is the first-way method of horizontal financial analysis in which the amounts in absolute dollars of various items are compared for an entity over different periods”(Compare Business Products, 2010). The dollar analysis assists a business in the amount of money spent as well as helps analyze the effects of outside factors. With the percentage analysis, it is situated on the change “in different items over different periods calculated in terms of percentage”(Compare Business Products, 2010). This type of analysis helps a small business’ performance. Vertical “A vertical analysis of income results when each expense category is expressed as a percentage of sales” (Epstein, L. & Schneider, A.,2014). In laymen terms, every item in the vertical column relates to the percentage of the top item. Vertical analysis expressed as gross sales on a balance sheet stated as a percentage of assets and liabilities can show monetary coming in and out as a percentage. This analysis allows accountants to compare financial statements across different fields easily. Comparing with other financial statements enable the opportunity to see if a business is prospering or failing. The vertical analysis line items allow for extraordinary combing expenses to ensure the profit. Ratio It is said that the ratio analysis is a useful tool to measure the performance of an organization. According to Damjibhai (2016), this helps management analyze the performance of an organization previously to make projections for the later performance. With this analysis, those involved in an organization like shareholders, investors, and creditors can view financial performance. Damjibhai (2016), further explains that ratios can show strengths and weaknesses with a business in several ways. This analysis allows an easy way to compare previous performance and then display the areas in which an organization has either an advantage or disadvantage by comparing other organization within the same field. The ratio analysis allows businesses the opportunity to improve their performance and reset and grow into a better force. To sum it up the ratio analysis uses an income statement or balance sheet to view how reliable a company is financially by comparing. Conclusion After reviewing each method, it will seem that the ratio analysis is the best practice regarding financial statement analysis. This method thoroughly dissects the financial statement. According to Epstein & Schneider in 2014, ratios analysis fix minor problems before they become major economic issues. The ratio analysis allows interested parties to keep a watchful eye on business and attempt to keep the issues at bay. With ratios put into categories, this will change all things to be held on track. Horizontal and vertical analysis is indeed essential; however, when involving in keeping things on track, the ration analysis seems more helpful.   References Bragg, S. B. (2019, January 4). Horizontal analysis. Retrieved April 1, 2019, from Compare Business Products. (2010, November 10). What Are Different Methods of Financial Statement Analysis? Retrieved April 1, 2019, from Damjibhai, S. D. (2016). Performance Measurement through Ratio Analysis: The Case of Indian Hotel Company Ltd. IUP Journal of Management Research, 15(1). Epstein, L. & Schneider, A. (2014). Accounting for Health Care Professionals [Electronic version]. Retrieved from