Chapter 17 Analysis of Financial Statements

Liquidity and Efficiency

Ability to meet short-term obligations and efficiently generate revenues

Solvency

Ability to meet long term obligations and generate future revenues.

Profitability

Ability to provide financial rewards to attract and retain financing

Market-prospects

Ability to generate positive market expectations

Business Segment

Part of a company that can be separately identified by the products or services that it provides or by the geographic markets that it serves; also called segments

Common-size financial statement

Statement that expresses each amount as a percent of a base amount In the balance sheet, total assets is usually the base and is expressed as 100%. In the income statement,net sales is usually the base.

Comparative financial statement

Statement with data for two or more successive periods placed in side-by-side columns, often with changes shown in dollar amounts and percents

Equity Ratio

Portion of total assets provided by equity, computed as total equity divided by total assets.

Financial Reporting

Process of communicating information relevant for making investment, credit, and business decisions.

General-Purpose financial statements

Statements published periodically for use by a variety of interested parties;include the income statement,balance sheet,statement of owner’s equity,statement of cash flows, and notes to these statements

Horizontal analysis

Comparison of a company’s financial condtion and performance across time.

Liquidity

Availability of resources to meet short-term cash requirements

Ratio analysis

Determine of key relations between financial statement items as reflected in numerical measures

Vertical analysis

Evaluation of each financial statement item or group of items in terms of a specific base amount

Working capital

Current assets minus current liabilities at a point in time