financial statement analysis

Question 1

financial statement analysis

Answer 1

• using financial statements to evaluate and make judgements on financial performance/position

Question 2

types of FSA

Answer 2

percentage change, horizontal analysis, vertical analysis, ratio analysis

Question 3

percentage change

Answer 3

• % change of line items relative to same item in previous periods
• itemY - itemPY ÷ itemPY

Question 4

horizontal analysis

Answer 4

• % change relative to a constant base year
• itemY - itemBY ÷ itemBY

Question 5

vertical analysis/common size

Answer 5

• expresses entries as % of same line item (revenue/asset)
• item ÷ sales or item ÷ assets

Question 6

ratio analysis

Answer 6

• meaningful quantities that can be comparisons other firms/years

Question 7

ratio

Answer 7

proportion of one account over another, describing relationship between two financial data items

Question 8

four ratio categories

Answer 8

profitability, liquidity, activity, financial structure

Question 9

profitability ratios

Answer 9

• measures ability generate earnings compared to expenses
• how well firm has performed and guidance on how it is likely to perform in the future

Question 10

liquidity ratios

Answer 10

measures ability to pay short-term financial obligations

Question 11

activity ratios

Answer 11

• measures ability to convert assets/liabilities into cash
• turnover is a rate; times per year, measuring flow of inventory, accounts receivable/payable

Question 12

financial structure ratios

Answer 12

measures how a firm finances operations and growth