Analysis Of Financial Statements

Front 1

What are the 4 Building Blocks of Anaylsis of the Financial Statements?

Back 1

1. Liquidit and Efficiency
2. Solvency
3. Profitability
4. Market Prospects

Front 2

Describe Liquidity and Efficiency.

Back 2

Liquidity - The Ability to Meet Short Term Obligations

Efficiency - The Ability to Generate Revenues

Front 3

Describe Solvency.

Back 3

The Ability to Generate Future Revenues and Meet Long-Term Obligations

Front 4

Describe Profitability.

Back 4

The Ability to Provide Financial Rewards Sufficient to Attract and Retain

Front 5

Describe Market Prospects

Back 5

Ability to Generate Positive Market Expectations

Front 6

What are the 4 Benchmarks that are the Standards for Comparisons

Back 6

1. Intracompany
2. Competitor
3. Industry
4. Guidelines

Front 7

What does Intracompany Mean as Related to Standards for Comparison?

Back 7

The Company Being Analyized Can Provide its Own Standards for Comparison. Examples Would be Comparing Prior Year Net Income to the Current Year

Front 8

What does Competitor Mean as Related to Standards for Comparison?

Back 8

For the Company being Analyzed, Standards for Comparison Can be Created by One or More Competitors.

Front 9

What does Industry Mean as Related to Standards for Comparison?

Back 9

Industy Statistics Can Provide Standards for Comparison. Statistics are Available from Services Such as Dun and Bradstreet, Standard & Poor's and Moody

Front 10

What does Guidelines Mean as Related to Standards for Comparison?

Back 10

Guidelines are Rules of Thumb. General Standards of Comparison Can be Developed from Experience. Examples are 2:1 Level for the Current Ratio and 1:1 Level for the Acid Test Ratio. Guidelines Must be Applied Carefully Because Context is Crucial.

Front 11

What are the 3 Most Common Tools of Analysis for Finacial Statements

Back 11

1. Horizontal Analysis
2. Vertical Analysis
3. Ratio Analysis

Front 12

What is the Basis of Horizontal Analysis

Back 12

Horizontal Anaylsis Refers to the Examination of Financial Statements Across Time

Front 13

What are Comparative Financial Statements

Back 13

Financial Statements that Show Financial Information in Side-by-Side Columns on a Single Statement, Called Comparative Format.

Front 14

How is Comparing Financial Statements Over a Relatively Short Time Period (2 or 3 Years) Often Done?

Back 14

By Comparing Line Items for Change. A Change Analysis Usually Includes Analyzing Absolute Dollar Amount Changes or Percent Changes.

Front 15

Why Does One Need to do Both a Dollar Amount Analysis and a Percent Change Analysis?

Back 15

Both Analysis are Relevant because Dollar Changes Can Yield Large Percent Changes that are Inconsistant with Importance. Example: A 50% Change from a Base Figure of $100 is Less Important than the Same Change from $100,000 in the Same Statement.

Front 16

What is Analysis Period?

Back 16

The Point or Period of Time for the Financial Statements Under Analysis

Front 17

What is Base Period?

Back 17

The Point or Period of Time that is Being Used for Comparison Purposes

Front 18

How do We Compute Dollar Change for a Financial Statement

Back 18

Dollar Change = Analysis Period Amount - Base Period Amount.

Front 19

What is the Formula for Percent Change

Back 19

% = Analysis Period Amount-Base Period Amount/Base Period Amount x 100

Front 20

When Computing Percent Change, Under What Circumstances Can We Not Compute It?

Back 20

When a Negative Number is Present in Either the Base Period or the Analysis Period Amount