CHAPTER 13
Financial Analysis: The Big Picture
Study Objectives
1. 2. 3. 4. 5. 6. 7. Understand the concept of sustainable income. Indicate how irregular items are presented. Explain the concept of comprehensive income. Describe and apply horizontal analysis. Describe and apply vertical analysis. Identify and compute ratios used in analyzing a company’s liquidity, solvency, and profitability. Understand the concept of quality of earnings.

Summary of Questions by Study Objectives and Bloom’s Taxonomy
Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT

Questions 1. 2. 3. 4. 5. 1. 2. 3. 1. 2. 1 2 1 2 6 2 2 2 2 1, 2, 6 C C C C C AP AP C AP C 6. 7. 8. 9. 10. 4. 5. 6. 3. 4. 5. 2. 2. 4, 5 4, 5 4, 5 6 6 4 5 4 4 5 4, 5 6 6 C C AP K C AP AP AP AP AP AP AP AP 11. 12. 13. 14. 15. 7. 8. 9. 6. 7. 8. 3. 3. 6 6 6 6 6 4 5 4 Exercises 4, 5 6 6 6 6 AP AP AP AN AN 9. 10. 11. 4. 4. 6 6 6 6 6 AP AP AP AN AN 5. 5. 6 6 E E 12. 6 AP K C C C C AP AP AP 16. 17. 18. 19. 20. 10. 11. 12. 6 6 6 6 6 6 6 6 C C C C AP AP AN AN 13. 14. 15. 6 6 6 AN AN AN 21. 22. 7 7 C AN

Brief Exercises

Problems: Set A 1. 1. 5, 6 5, 6 AN AN

Problems: Set B

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ASSIGNMENT CHARACTERISTICS TABLE
Problem Number 1A 2A Difficulty Level Simple Simple Time Allotted (min.) 20–30 20–30

Description Prepare vertical analysis and comment on profitability. Compute ratios from balance sheet and income statement. Perform ratio analysis, and discuss change in financial position and operating results. Compute ratios; comment on overall liquidity and profitability. Compute selected ratios, and compare liquidity, profitability, and solvency for two companies. Prepare vertical analysis and comment on profitability. Compute ratios from balance sheet and income statement. Perform ratio analysis, and discuss change in financial position and operating results. Compute ratios; comment on overall liquidity and