Financial Analysis Flashcards
3 frequently used analyses
Common size analysis
Comparative analysis
Ratio analysis
Common size analysis
Uses comparative percentages to further define elements of a financial statement
Each value is standardized by common value
Normalizes in differences in size of entity
Common size analysis for Balance sheet
Divide each value by the total assets
Common size analysis for Income statement
Divide each value by the operating revenue
Common size analysis is AKA
Vertical column size
Comparative analysis AKA
Horizontal analysis
Trend analysis
Comparative analysis
Examines the same information for more than one date or period of time
Comparative vs. Common size analysis when comparing year to year when significant change in size of business occurred (or when comparing two different sized entities) - which is better
Common size analysis
Comparative analysis - ex: % change 2008 - 2009 =
(2009 value - 2008 value) / 2008 value
Ratio analysis
Uses ratios, that when compared, provide management with some beneficial insight into the financial health of the organization
