Chapter 6 - Perform the Analysis - Descriptive Analytics

What is descriptive analytics?

Analytics that answers "What happened?" or "What is happening?" by summarizing and organizing data.

Why is descriptive analytics important?

It provides context for numbers and helps us understand performance before asking why or how.

What must you understand before asking "why" or "how"?

The "what" (descriptive analytics).

What are the main goals of descriptive analytics?

Define descriptive analytics, identify tools/techniques, and understand examples.

What financial data sources are used in descriptive analytics?

Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Stockholders' Equity, Footnotes, and 10-K Filing.

Why isn't profit alone enough to evaluate performance?

Because context (like company size) is needed for meaningful comparison.

What are measures of central tendency?

Metrics describing what is "typical" in a dataset.

What are the three main measures of central tendency?

Mean, Median, and Mode.

Which measure of central tendency is affected by extreme values?

Mean.

When is the median most useful?

When data is skewed or contains outliers.

What do measures of variability show?

The spread of data.

What is standard deviation?

A summary measure showing variability in a dataset.

When should you use tables?

For precise values and detailed comparisons.

When should you use charts?

To visualize trends, patterns, and summaries.

What is a bar chart used for?

Showing changes between periods.

What is a line chart used for?

Showing trends over time.

What is a histogram used for?

Showing distributions (e.g., receivables aging).

What are PivotTables used for?

Summarizing data (e.g., profitability by customer or product).

What is horizontal analysis?

provides comparative increases about various line items of each financial statement over time.

What is the formula for percentage change?

(New - Old) / Old.

What is vertical (common-size) analysis?

Expressing financial statement items as a percentage of a base amount.

What is the base for vertical analysis of income statements?

Net sales revenue.

What is the base for vertical analysis of balance sheets?

Total assets (or total liabilities & equity).

What is ROA (Return on Assets)?

A measure of how efficiently assets generate profit.

What is ROE (Return on Equity)?

A measure of how well a company uses shareholders' equity.

What is DuPont analysis?

Breaking down ROA or ROE into components to understand performance drivers.

What is the ROA decomposition formula?

ROA = Profit Margin × Asset Turnover.

What is the full ROE DuPont formula?

ROE = Profit Margin × Asset Turnover × Financial Leverage.

What comes after descriptive analytics in the analytics progression?

Diagnostic (why it happened), Predictive (what will happen), and Prescriptive (what should be done).