TAILIEUCHUNG - Lecture Fundamentals of financial accounting (3e): Chapter 13 - Phillips, Libby, Libby
Chapter 13 - Chapter 13 - Measuring and evaluating financial performance. In the previous chapters, you learned how to report and interpret the financial effects of various business activities. This chapter synthesizes previous chapters, by evaluating the financial statements and accounting decisions of a publicly traded company. | Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Fundamentals of Financial Accounting 3e by Phillips, Libby, and Libby. Chapter 13 Measuring and Evaluating Financial Performance PowerPoint Authors: Susan Coomer Galbreath, ., CPA Charles W. Caldwell, ., CMA Jon A. Booker, ., CPA, CIA Fred Phillips, CA Chapter 13: Measuring and Evaluating Financial Performance. Horizontal, Vertical, and Ratio Analyses Horizontal (trend) analyses are conducted to help financial statement users recognize important financial changes that unfold over time. Gross Profit in 2009 Δ in Gross Profit $ and/or % from 2009 12/31/09 12/31/10 Gross Profit in 2010 Trend Analysis Vertical analyses focus on important relationships between items on the same financial statement. Sales Cost of Goods Sold Gross Profit $200,000 100% 150,000 75% $ 50,000 25% Amount Percent 2010 13- Part I Horizontal (trend) analyses are conducted to help financial statement users recognize important financial changes that unfold over time. Part II A company will report gross profit each year on its income statement. In Horizontal or trend analysis, we might calculate the change in gross profit from one year to the next. We could do this for all accounts on the financial statements. Part III Vertical analyses focus on important relationships between items on the same financial statement. Part IV Here is a partial income statement showing sales, cost of goods sold, and gross profit for the fiscal year 2010. While we know that the number amounts will appear on the income statement, we gain insights the values on the income statement by doing a vertical, or common size, analysis. Here we have calculated the percentages for each amount by expressing sales as 100 percent. Horizontal (Trend) Computations Year-to-Year Change (%) = Change This Year Prior Year’s Total × 100 Trend analyses are usually calculated in terms of year-to-year dollar and percentage changes. (Current
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