1. Intracompany comparisons of the same financial statement items can often detect changes in financial relationships and significant trends. 2. Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles. 3. Measures of a company’s liquidity are concerned with the frequency and amounts of dividend payments. 4. Analysis of financial statements is enhanced with the use of comparative data. 5. Comparisons of company data with industry averages can provide some insight into the company’s relative position in the industry. 6. Vertical and horizontal analyses are concerned with the format used to prepare financial statements. 7. Horizontal vertical and circular analyses are the most common tools of financial statement analysis. 8. Horizontal analysis is a technique for evaluating a financial statement item in the current year with other items in the current year. 9. Another name for trend analysis is horizontal analysis. 10. If a company has sales of $110 in 2013 and $154 in 2014 the percentage increase in sales from 2013 to 2014 is 140%. 11. In horizontal analysis if an item has a negative amount in the base year and a positive amount in the following year no percentage change for that item can be computed. 12. Common size analysis expresses each item within a financial statement in terms of a percent of a base amount. 13. Vertical analysis is a more sophisticated analytical tool than horizontal analysis. 14. Vertical analysis is useful in making comparisons of companies of different sizes. 15. Meaningful analysis of financial statements will include either horizontal or vertical analysis but not both. 16. Using vertical analysis of the income statement a company’s net income as a percentage of net sales is 10%; therefore the cost of goods sold as a percentage of sales must be 90%. 17. In the vertical analysis of the income statement each item is generally stated as a percentage of net income. 18. A ratio can be expressed as a percentage a rate or a proportion.
