University:
McMaster University
Course:
ACC 928 | Introductory Management Accounting
Academic year:

2022
Views:

285

Pages:

2
Author:

Sabrina S.

CH Financial Statement 11 Analysis Understand how to prepore & Interpret a horizontal analysis of an nome statement & balance sheet Horizontal Analysis: Provides a study of changes! Year-to-year comparison of a company's performance in diff. periods. 1. Compute the dollar amount of the change from the earlier period to the later period. 2. Divide the dollar amount of change by the earlier period amount. % change Dollar amount of change Base-year amount Balonce Sheet: Any year Trend To Base year Understand how to prepore & interpret a vertical analysis of an income statement & balance sheet. Vertical Analysis provides a means of evaluating the relative size of each line item in the financial statements. It also allows us to compare companies of different size. Vertical Analysis for income statement Each income statement line item Sales revenue Vertical Analysis % for balance sheet Eachu balance short line item Total assets Calculate the following ratios Price- earnings, Inventory Turnover, Acid test, Current Ratio, Day's Sales in receivables, Debt Ratio Current Ratio: measures the ability to pay current liabilities with current assets Current Ratio Current assets Current kabilities Acid-Test Ratio aka quick Ratio; tells liabilities if they came due immediately. us whether the entity could pay all of its current Acid-Test Ratio Cach + short-term investment's+ Net current receivables Current liabilities Inventory Turnover measures # of times year. A high rate of turnover indicates difficulty. a company sells its average level of inventory during cace in selling inventory; OL low rate indicates Inventory Turnover Cost of goods sold Average Inventory Day's Sales in Receivables: The day's sales in to collect receivables. Day's sales in recrivabler tells Accounts Receivable. receivables ratio also measures the ability us how many days sales remain in 1 Divide net sales by 365 days to figure average sales for one day One day's Sales= Net Sales 365 days 2. Divide this average clay: saler amount into average net accounts receivable Day's sales in average accounts receivable Average net accounts receivable One day sales Debt Ratio: shows the proportion of assets financed with debt. When the debt ratio is 1, all of the assets are financed with debt. 0.50 owners means that delat financas half the assets; the of the business have financed the other half. The higher the Debt Ratio, the higher the Financial fisk Tonal vabilities Total assets Debt Ratio P/E Price/ Earnings Ratio is the ratio of the market price of share of common stock to the company's earnings per share. It shows the market price of $1 of earnings P/E Ratho Market price per shore of Common stock