Financial Statement Analysis Reviewing and Analyzing Financial Statements

Financial Statement Analysis

Reviewing and Analyzing Financial Statements The Financial Statements are a powerful tool to monitor business performance. Financial Statement Analysis produces actionable information for the business. Income Statement Analysis v. Profitability Ratios (Vertical Analysis) (ability to generate income, after expenses) v. Comparative (Compare actual to actual – prior year to current year) v. Benchmark (Compare performance to a pre-set standard; budget or industry norm) Balance Sheet Analysis v Vertical Analysis (Understanding the make-up of Assets and Liabilities) v. Comparative (Compare actual to actual - prior year to current year) v. Benchmark (Compare performance to a pre-set standard; budget or industry norm)

Vertical Analysis of the Income Statement Here is a good example of a vertical analysis of the Income Statement. It includes: - Profitability Ratios* - Comparative to Prior Year • The base for calculation is always net sales

Key Measures for the Income Statement 1. Gross Profit Margin – Profitability after including costs of product sold (Revenue – cost of product sold = Gross Profit) 2. Income from Operations – Profitability including all costs of doing business (Gross Profit – Operating Expenses (rent, insurance, administration) = Income from Operations)

Vertical Analysis of the Balance Sheet Vertical analysis of the Balance Sheet uses Total Assets and Total Liabilities and Stockholder’s Equity as the Base to understand the components of the Balance Sheet

Horizontal Analysis of the Income Statement & Balance Sheet Horizontal Analysis uses comparative changes over time to understand performance. In this example a year over year comparison is used

Additional Financial Ratios Liquidity - The ability of a business to pay its current financial obligations. More liquid means more cash to pay for operations Working Capital – A specific measure of a company’s liquidity Working Capital = Current Assets – Liabilities Current Assets and Liabilities are generally expected to be settled within one year. Includes Cash, Accounts Receivable, Prepaid Assets, Accounts Payable and other obligations due within one year

http: //d 18 rn 0 p 25 nwr 6 d. cloudfront. net/CIK-0000320193/1 a 919118 -a 59444 f 3 -92 f 0 -4 ecca 47 b 1 a 7 d. pdf Access the Apple Financial Statements - Page 29: Consolidated Statement of Operations (their Income Statement) - Page 31: Consolidated Balance Sheets