...Ratio, Vertical, and Horizontal Analysis Check Point Brandy McDonald Principles of Accounting February 24, 2012 Vaunda Davis Ratio, Vertical, and Horizontal Analysis Check Point The three vital tools of financial statements are the ratio, vertical, and horizontal analysis. Each financial statement examines the data within monetary statements of businesses or organizations. Being able to determine the financial stability of a company is important in addressing any areas of weakness or aide in the decision making processes. Ratio analysis is associated with evaluating the liquidity, profitability, and solvency of a corporation to judge performance scenarios. Vertical analysis gauges entries for assets, liabilities, and equities in a balance sheet to compare the proportions of the total account. It enables any size of a business the opportunity to easily compare relative annual changes. Horizontal analysis allows companies to compare performance ratios over a certain period of time, usually one year’s worth of entries. It is also referred to as trend analysis and offers insight into the overall success of a company in order to make sound investments. These types of ratios are able to be used on any item of finance from revenues to earnings within a company. PepsiCo, Inc. The Current Ratio for 2005 is Current Assets 10,454/ Current Liabilities 9,406 which equals 1.11%. The Current Ratio for 2004 is Current Assets 8,639/ Current Liabilities 6,752 which equals 1.28%. ...
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...Deliverables Company Selection – Week 1 Course Project Horizontal Analysis – Week 2 Course Project Vertical Analysis – Week 3 Course Project Final Ratio Analysis – Week 4 General Expectations for Your Final Course Project Submission – Week 7 Citation Help |Deliverables | | Course Project Company Selection Please post your chosen companies for comparison for my approval in the Week 1 Course Project Dropbox by Sunday, end of Week 1, 11:59 p.m. (MT). I will give you feedback to make sure that you're on the right track for this assignment. (5 points) Course Project Horizontal Analysis Please post the horizontal analysis for your Course Project in the Week 2 Course Project Dropbox by Sunday, end of Week 2, 11:59 p.m. (MT). (40 points) Course Project Vertical Analysis Please post the vertical Analysis for your Course Project in the Week 3 Course Project Dropbox by Sunday, end of Week 3, 11:59 p.m. (MT). (40 points) Course Project Final Ratio Analysis Please post the Ratio Analysis for your Course Project in the Week 4 Course Project Dropbox by Sunday, end of Week 4, 11:59 p.m. (MT). (40 points) Final Course Project Submission Please post the Course Project final summary assignment to the Week 7 Course Project Dropbox by Sunday, end of Week 7, 11:59 p.m. (MT). (75 points) |Category ...
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...Following is a comprehensive analysis of the financials of the profitability, competitiveness and overall stability of the Competition Bikes, Inc. based on their finance statements. This analysis provides information based on working capital, horizontal analysis, vertical analysis, ratio analysis and trend analysis. This analysis provides essential information on forecasting budget limits and overhead expenses based on overall sales potential. The analysis is based on the last three fiscal years of data provided by Competition Bicycles, Inc. A.1.A. : Horizontal Analysis A horizontal analysis is used to see variations in account line items from year to year. Strictly speaking, according to Accounting for Management (2014), a horizontal analysis “shows changes in the amounts of corresponding financial statement items over a period of time.” The formula utilized to calculate this change is Dollar change = Comparison Year Balance – Base Year’s Balance. The percent change is, therefore, calculated as the dollar change / Base Year’s Balance and multiplied by 100 for a strict percentage. At Competition Bikes, the numbers tell an interesting story. Sales dramatically increased 33.3% between years 6 and 7 before taking a loss of 15% in years 7 to 8. This still puts Competition Bikes at a solid increase of 13.3% in sales from years 6 to 8. Gross profits show a similar trend, increasing by 37.5% between years 6 and 7, while dropping by 16.3% between years 7 and 8 – the net profit increase...
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...Student Assignments Accounting 310 Summer 2015 1. Homework Assignments a. Review problem Ch. 1 b. Horizontal and Vertical Analysis (Common Sizing – Ch. 3) for last three Target, Inc. annual reports (3 years Income Statement, 4 years balance sheet) http://investors.target.com/phoenix.zhtml?c=65828&p=irol-reportsannual c. Target Corp. Ratios using last three years financial statements i. Profitability Ratios (Ch. 3) ii. Effectiveness ratios (Ch. 3, 7) iii. Solvency ratios (Ch. 3, 11) iv. Liquidity Ratios (Ch. 3, 12) d. ABC Costing Problem (Elliot Page, Inc.) Ch. 5 e. Operating leverage problem from end of Chapter 6 (Ch. 3, 6) 2. Cases a. Capital Budgeting Case (Case # 1) – 3 problems from end of Chapter 9. b. Forecasting – Scamper Industries Case (Case #2) Ch. 13 homework. c. Each case should be no more than 4 pages of text with supporting spreadsheets or documents. d. Make sure you come to a conclusion about what the firm should do. 3. Internal Control Paper (Ch. 15) Using the business where you work, by observing processes in a business, or by talking to someone who works, you should produce a 2-3 page paper. In the paper, you should 1. Provide introduction giving company, industry and your association 2. identify at least 10 internal controls that are employed by the company ...
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...JET2-Task1 A.1.a Horizontal analysis Horizontal analysis is essentially an analysis on the trend of the financials of the company. It shows changes in the amounts of the amounts over a period of time. In the financial statement provided, the horizontal analysis is between years six and seven, and years seven and eight; respectively. When analyzing the income statement provided with the task, several strengths and weaknesses are very apparent. They will be broken down individually and analyzed separately. Horizontal analysis is calculated by using the formula below ("Horizontal Analysis," n.d.) Income Statement Revenue: Net sales between years 6 and 7 demonstrate a 33.3% increase or an increase in approximately $1.5 million. This is a strength because there were positive sales during this time frame. Positive sales are always a positive finding in business. However, sales between years 7 and 8 demonstrate a decrease in net sales of -15% or $897,000. This is a weakness due to the overall sales being down. Cost of Goods Sold between years 6 and 7 demonstrates an increase of 31.8% or $1,048,000. The costs associated with manufacturing goods are always going to be a big expense. While the cost associated may appear to be a weakness for the company, it actually demonstrates strength for the company. The reason being is the percent change in sales. It closely represents the increase in sales during the same period. If the sales number did not adequately correlate...
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...08:45 - Financial analysis: Company name: Competition Bikes Inc. Activity: Financial Analysis The financial analysis of a business organization involves the complete assessment of the liquidity, profitability, competitiveness and stability of the business. The process is done through using the financial statements of the business. The financial reports are generally presented to top management for purposes of decision making and setting up goals. Analyzing Competition Bikes Inc.’s financial status requires evaluating its internal operations reflecting the horizontal, vertical, ratio, and trend analysis, as well as its working capital. These reviews provide profit margins allowing for projecting any necessary budget restraints in overhead costs and sales potential. Yearly production performance comparisons, based on overhead versus profit, enable a budget projection for ordering production materials on a month-to-month basis. (Shim, J. and Siegel, J. 2009). Horizontal Analysis The horizontal analysis is the study of percentage changes of comparative statements in the case of Competition Bikes Inc.’s years six and seven, and seven and eight. Using the horizontal analysis chart, Competition Bikes Inc., shows the accounts payable, between years six and seven increased as it did between years seven and eight. 1 / 18 Competition Bikes Inc Written by Administrator Tuesday, 03 July 2012 08:45 - According to the horizontal analysis, Competition Bike Inc...
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...Executive Summary Report Competition Bikes, Inc Horizontal, Vertical, Trend, and Ratio Analysis Using the attached income statements and balance sheets we can assess the financial health of Competition Bikes, Inc. We will be looking at years 6, 7, and 8. A.1.a. Horizontal Analysis Results Horizontal analysis is a procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. (Dictionary) If we look at the income statement, year 6 to year 7, sales increased 33% and there was a 31% increase in cost of goods sold. This is a positive for the company. It shows that they have improved their awareness of the brand and knowledge of their products. There was also an increase in advertising expenses that was offset by the sales commissions of 33% and an increase in general operating expenses. Each of these line items increased from year 6 to year 7 and decreased from year 7 to year 8. Since these items increased from year 6 to year 7, this is a positive for the company. It shows that production went up due to more sales coming in. Competition Bikes EBIT increased from year 6 to year 7 by 313% but also decreased from year 7 to year 8 by 81%. Looking at the balance sheet, total assets increased 2% from year 6 to year 7. Total liabilities increased only 1.2% which is a good indication of positive growth for the company. A review of the company’s income statement from years 7 and 8...
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...Competition Bikes, inc, Executive Summary Report * Skip to Navigation * Skip to Content ------------------------------------------------- Top of Form Bottom of Form Horizontal, Vertical, Trend and Ratio Analysis The assessments of the financial health of Competition Bikes, Inc. (CB) are derived using the attached income statements and balance sheets. Focusing on calendar years # 6, 7 and 8 to gauge the growth and stability of this company. Between the years # 6 and 7, Competition Bikes, Inc. had a significant growth in new earnings that was not extended on into year # 8. The net earnings moved from a positive 313.4 % to a dramatic loss of 81.6% . A.1.a) Horizontal Analysis Results Horizontal Analysis is a direct comparative analysis of each line item across the same time frames of a particular company. It is calculated in dollars and percentages. An analysis will look at how the accounts have fluctuated from one year to the next. The formula used is: Dollar change = This Year’s Balance – Last Year’s Balance. Percent change = Dollar Change . The income statement from year # 6 to year # 7, exhibited a sales increase of 33%. There was only a 31 percent increase in product costs. This decrease in cost of materials was offset by sales expense of 33 percent and an increase in general operating espense – totaling 20 percent.. These line expenses both increased from year # 6 through year # 8. These increases offset the profit from...
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...importance to each company, so other types analysis needs to be used. In general analyzing financial statements allows the management to identify issues, make changes, and to take control to meet the goals set for the company. There are quite a few difference analyses that could be used. One such analysis is Horizontal analysis. In Horizontal analysis the changes and difference are an indication for further analysis. Horizontal analysis on its own will help identify potential issues, but even better would be to compare this company’s Horizontal analysis with similar companies in the same industry. Using dollars for the analysis can be deceiving, even within the same industry. A solution to the skewed numbers is to use percentages when comparing multiple companies allows the comparison to be reviewed on an even ground. An example would be company A and companies B both have an increase in earnings of $100,000. Company A has total earnings of $1 million, a ten percent increase, and company B $10 million, only a one percent increase. The smaller company will be happier with the increase then the larger. Within the industry, trends can be identified and corrected before they are out of control. A downfall to Horizontal analysis is that the numbers change from day to day. It is helpful to conduct this analysis as soon as the financials are available to prevent further loses. Another downfall to Horizontal analysis is the data can be manipulated, to an extent...
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...Financial Analysis of Competition Bikes, Inc. Competition Bikes, Inc. was founded by one person who saw the need for a light weight, better quality professional bicycle. He built the company from the ground up from his garage. The success of the company relies on accountability and transparency and therefore, a financial analysis is completed on a yearly basis. This process is vital to the success of the company as it gives management the foundation with which to base future long and short term goals. Each financial analysis evaluates horizontal, vertical, trend, and ratio results. A1a. Horizontal Analysis is “A procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration” (Investopedia, Horizontal Analysis, para. 1). According to the Income Statements Competition Bikes, Inc. was strong in many areas from year 6 to year 7. Net sales increased by $1,495,000 from Y6 to Y7 which is a 33.3% increase. When looked at with the cost of goods sold which increased only 31.8% or $1,048,000 during the same time period you can see that the company was successful in increasing its gross profit. Gross profit increased $447,000 from Y6 to Y7 or 37.5%. Increased profit is a big strength for the company. Operating expenses were...
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...CHAPTER 13 Financial Statement Analysis LEARNING OBJECTIVES After you have mastered the material in this chapter, you will be able to: 1 2 3 4 5 6 7 8 Describe factors associated with communicating useful information. Differentiate between horizontal and vertical analysis. Explain ratio analysis. Calculate ratios for assessing a company’s liquidity. Calculate ratios for assessing a company’s solvency. Calculate ratios for assessing company management’s effectiveness. Calculate ratios for assessing a company’s position in the stock market. Explain the limitations of financial statement analysis. LP13 CHAPTER OPENING Expressing financial statement information in the form of ratios enhances its usefulness. Ratios permit comparisons over time and among companies, highlighting similarities, differences, and trends. Proficiency with common financial statement analysis techniques benefits both internal and external users. Before beginning detailed explanations of numerous ratios and percentages, however, we consider factors relevant to communicating useful information. 674 The Curious Accountant On May 14, 2007, DaimlerChrysler (DC) and Cerberus announced that Cerberus, a private-equity firm, was buying 80 percent of the Chrysler Group from DaimlerChrysler. The sale closed on August 3, 2007. Some analysts claimed the “sale” actually involved DaimlerChrysler paying Cerberus to take Chrysler off its hands. After the sale, DaimlerChrysler planned to rename itself Daimler AG...
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...CHAPTER 13 Financial Statement Analysis LEARNING OBJECTIVES After you have mastered the material in this chapter, you will be able to: 1 2 3 4 5 6 7 8 Describe factors associated with communicating useful information. Differentiate between horizontal and vertical analysis. Explain ratio analysis. Calculate ratios for assessing a company’s liquidity. Calculate ratios for assessing a company’s solvency. Calculate ratios for assessing company management’s effectiveness. Calculate ratios for assessing a company’s position in the stock market. Explain the limitations of financial statement analysis. LP13 CHAPTER OPENING Expressing financial statement information in the form of ratios enhances its usefulness. Ratios permit comparisons over time and among companies, highlighting similarities, differences, and trends. Proficiency with common financial statement analysis techniques benefits both internal and external users. Before beginning detailed explanations of numerous ratios and percentages, however, we consider factors relevant to communicating useful information. 674 The Curious Accountant On May 14, 2007, DaimlerChrysler (DC) and Cerberus announced that Cerberus, a private-equity firm, was buying 80 percent of the Chrysler Group from DaimlerChrysler. The sale closed on August 3, 2007. Some analysts claimed the “sale” actually involved DaimlerChrysler paying Cerberus to take Chrysler off its hands. After the sale, DaimlerChrysler planned to...
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...CHAPTER 13 Financial Statement Analysis LEARNING OBJECTIVES After you have mastered the material in this chapter, you will be able to: 1 2 3 4 5 6 7 8 Describe factors associated with communicating useful information. Differentiate between horizontal and vertical analysis. Explain ratio analysis. Calculate ratios for assessing a company’s liquidity. Calculate ratios for assessing a company’s solvency. Calculate ratios for assessing company management’s effectiveness. Calculate ratios for assessing a company’s position in the stock market. Explain the limitations of financial statement analysis. LP13 CHAPTER OPENING Expressing financial statement information in the form of ratios enhances its usefulness. Ratios permit comparisons over time and among companies, highlighting similarities, differences, and trends. Proficiency with common financial statement analysis techniques benefits both internal and external users. Before beginning detailed explanations of numerous ratios and percentages, however, we consider factors relevant to communicating useful information. 674 The Curious Accountant On May 14, 2007, DaimlerChrysler (DC) and Cerberus announced that Cerberus, a private-equity firm, was buying 80 percent of the Chrysler Group from DaimlerChrysler. The sale closed on August 3, 2007. Some analysts claimed the “sale” actually involved DaimlerChrysler paying Cerberus to take Chrysler off its hands. After the sale, DaimlerChrysler planned to...
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...of the bike being sold. Money is spent on research in efforts to ensure the lightest most custom bike is offered to its customers. The company also invented the CarbonLite which was the first designed bike to offer drive shaft technology. Although Competition Bikes, Inc. has experienced tremendous success over the past eight years in business, they have also experience a 15% sales decline over the most recent years. It is imperative that a financial analysis take place in efforts to trend where the financial issues are arising from allowing Competition Bikes, Inc. to explore other means of increasing profit margins. In completing a financial analysis for Competition Bikes, Inc. one must analyze financial data to include performing a horizontal analysis. This type of analysis is designed to show trends or changes between years in both dollar and percentage form. Showing changes in percentage form allows for better perspective in regards to the significance of financial change between years. In performing a horizontal analysis (current year minus base year divided by base year), the balance sheet as well as the income statements must be assessed. There are several trends noted when analyzing the income statement....
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...and the products or service they offer to consumers. It is difficult directly to compare the financial statements of different firms. Because of size differences among firms he dollar level of assets, liabilities,and expenses will be hard to compare. The financial statement can be used to analyze a company’s performance or comparing the differences in accounting methods between companies that make it difficult to do a direct comparison.Companies may use a cash-based accounting method; another may use an accrual-based accounting method. Another,difference is financial ratios should be considered at the beginning of the analysis. There are three types of analysis which are generally used when analyzing financial statements. These three statements are horizontal,vertical,and ratio. Horizontal analysis, compares the percentages and dollar change of each line item of a company financial statements. Vertical analysis,...
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