Techniques of Financial Statement Analysis ◆ Horizontal analysis n Comparative financial statements are presented side by side ◆ Trend analysis ◆ Vertical analysis D Common-size financial statement ◆ Ratio analysis Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
6 Techniques of Financial Statement Analysis ⧫Horizontal analysis Comparative financial statements are presented side by side ⧫Trend analysis ⧫Vertical analysis Common-size financial statement ⧫Ratio analysis
Horizontal analysis X Company Comparative Balance sheet December 31, 2004 and 2005 Decem ber Increase or decrease 31 2004 2005 Amount Percentage Liabilities and Stockholders equi Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 7
7 Horizontal analysis X Company Comparative Balance Sheet December 31, 2004 and 2005 December 31 Increase or Decrease 2004 2005 Amount Percentage Asset Liabilities and Stockholders Equity - - - -
Trend Analysis Comparing a company's financial condition and performance across time Cash 1000000000 800000000 600000000 ◆Cash 400000000 200000000 19992000200120022003 Ye ear Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 8
8 Comparing a company’s financial condition and performance across time Trend Analysis Cash 0 200000000 400000000 600000000 800000000 1000000000 1999 2000 2001 2002 2003 Year Cash
Vertical analysis Q Vertical analysis is used to show the relationship of the component parts to the total in a single statement n In the vertical analysis of the balance sheet each asset or equity item is stated as a percent of total assets: n In the vertical analysis of the income statement, each item is stated as a percent of net sales; Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity
9 Vertical analysis ⧫Vertical analysis is used to show the relationship of the component parts to the total in a single statement In the vertical analysis of the balance sheet, each asset or equity item is stated as a percent of total assets; In the vertical analysis of the income statement, each item is stated as a percent of net sales;
A example of vertical analysis Year ended 2003 2002 2001 Net sales 100.00 100.00 100.00 ess: Cost of goods sold 854.96 85.61 87.88 Gross profit on sales 15.01 14.39 11.40 Selling expenses 11.29 11.01 11.41 Administrative expenses 2.71 2.59 2.40 Interest expenses 0.20 0.15 0.81 Totalexpenses 14.20 13.75 13.00 Income before taxes 0.81 0.64 1.40 Income taxes 0.02 0.03 06 Net income 0.89 0.61 1.34 Task Team of FUndaMientalactoUntING Business Sehool. Sun Yatsen niversity 10
10 A example of vertical analysis Year ended 2003 2002 2001 Net Sales 100.00 100.00 100.00 Less: Cost of goods sold 854.96 85.61 87.88 Gross profit on sales 15.01 14.39 11.40 Selling expenses 11.29 11.01 11.41 Administrative expenses 2.71 2.59 2.40 Interest expenses 0.20 0.15 -0.81 Total expenses 14.20 13.75 13.00 Income before taxes 0.81 0.64 1.40 Income taxes 0.02 0.03 0.06 Net income 0.89 0.61 1.34