会计英语unit 12 Analyzing Interpreting Financial Statements.pptVIP

Unit 12 Analyzing Interpreting Financial Statements Why? The basic financial statements provide much information the users need, but what thy give is only an overall view. Comparison, analysis and study are needed to enable their users to understand the financial position and performance of a company. Financial analysis is a process of reclassification and summarization of the financial information through the establishment of ratios and trends in order to interpret the company’s activities and to understand the company’s financial situation. Ⅰ. Horizontal Analysis Horizontal Analysis, also called trend analysis, compares a series of financial statement data over a period of time. Firstly, the base year that carry a weight of 100 for each item is selected. Then, the amount of same item in prior or subsequent years is expressed as the percentage of the base year amount. For example, when you hear someone saying that revenues increased by 10% this past quarter, that person is using horizontal analysis. Horizontal analysis can be used on any item in a companys financials (from revenues to earnings per share), and is useful when comparing the?performance of various?companies. Ⅱ.Vertical Analysis Vertical Analysis shows the relationship of each item to the total within a single statement. Ⅲ. Ratio Analysis Ratio analysis is used widely. It is a critical tool used by the management to see what exactly is happening in the company and is watched closely by all information users. With appropriate calculation and interpretation, ratio analysis can provide information about the situation of a business, including liquidity, solvency and profitability. The analysis is used to provide indicators of past performance by employing critical success factors in a business. As a decision-making tool, ratio analysis reduces reliance on intuitive guessing and established a basis for sound judgment. 1. Liquidity ratio Liquidity refers to the ability of a firm to meet its short-term