Financial Statement Analysis

To make informed decisions about a company

Helpful in managing the company

Comparison with competition

Charting a company’s progress, measure

performance

Establish financial health

Used for investment decisions

Generally based on comparative financial data

From one year to the next

With a competing company

With the industry as a whole.

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Three main ways to analyze financial statements

Horizontal analysis

Year-to-year comparison

Vertical analysis

Compare different companies

Using industry averages

Compare company’s performance against the

industry averages

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The study of percentage changes in comparative

statements

Compute dollar changes

Compute percentage changes

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Step 1

Step 2

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Form of horizontal analysis

Indicates business direction

How have things changed over the years?

Select a period of three to five years

Base year, earliest year, is selected and set equal

to 100%

Subsequent years expressed as a percentage of

the base period

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Data for Mariner Designs, Inc., follow:

MARINER DESIGNS, INC.

Comparative Income Statement

Years Ended December 31, 2012 and 2011

2011

Net sales revenue

2012

$ 431,000

$ 372,350

$ 200,000

$ 187,550

99,000

91,050

Other expense

8,350

6,850

Total expenses

$ 307,350

$ 285,450

$ 123,650

$ 86,900

Expenses:

Cost of goods sold

Selling and general expenses

Net income

1. Prepare a horizontal analysis of the comparative income statement of Mariner

Designs, Inc. Round...