© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin FINANCIAL STATEMENT ANALYSIS

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Internal UsersExternal Users Financial statement analysis helps users make better decisions. Managers Officers Internal Auditors Shareholders Lenders Customers Purpose of Analysis

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Need for Comparative Analysis Intra-company analysis  Compare one item in the current year with same item from previous year/s (Detect Changes) Industry Average  Compare item of a company against industry average (Assess Relative Performance within Industry) Inter-company analysis  Compare one item of a company with the same item in one/more competing companies (Determine Competitive Position)

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Comparative Horizontal Analysis Trend Percentages Common- size Vertical Analysis Ratios Tools of Analysis

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Dollar Change: Analysis Period Amount Base Period Amount Dollar Change =– Percentage Change: Dollar Change Base Period Amount Percent Change = ÷ % Comparative Horizontal Analysis

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Let’s look at the asset section of Clover, Inc. comparative balance sheet for 2013 and Let’s look at the asset section of Clover, Inc. comparative balance sheet for 2013 and Compute the dollar change and the percentage change for cash. Let’s look at the asset section of Clover, Inc. comparative balance sheet for 2013 and Let’s look at the asset section of Clover, Inc. comparative balance sheet for 2013 and Compute the dollar change and the percentage change for cash. Comparative Horizontal Analysis

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin $12,000 – $23,500 = $(11,500)

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin ($11,500 ÷ $23,500) × 100% = 48.94%

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Examine the relative size of each item in the financial statements by computing component (or common-sized) percentages. Common-size Percentage 100% Analysis Amount Base Amount = × Financial StatementBase Amount Balance SheetTotal Assets Income StatementRevenues Financial StatementBase Amount Balance SheetTotal Assets Income StatementRevenues Common-size Vertical Analysis

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin ($12,000 ÷ $315,000) × 100% = 3.8% ($23,500 ÷ $289,700) × 100% = 8.1%

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Trend analysis is used to reveal patterns in data covering successive periods. Trend Index Analysis Period Amount Base Period Amount 100% = × Trend Index Analysis

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 2003 is the base period so its amounts will equal 100%. Berry Products Income Information For the Years Ended December 31, Trend Index

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Trend Percentage Analysis Period – Previous Period (Base Period) Previous Period Amount (Base Period) 100% = × Trend Percentage

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 2003 is the base period so its amounts will equal 0. Berry Products Income Information For the Years Ended December 31, Trend Percentage