Accounting
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Learning Team Reflection
ACC 561
September 04, 2015
Financial Statement Analysis
Financial statements include balance sheets, income statements, and statement of cash flows. They are reports that show a lot about an organization’s financial conditions, results, and cash flows and are very useful. There are various approaches an organization can take to analyze their financial statements, which include comparative and ratio analysis. The purpose of each approach is different, but they both have its importance.
Comparative Analysis
Comparative analysis is a method that can be used to identify any new trends when the ratio or data for something specific, such as an item from multiple periods are presented for a straight across comparison, which is also known as a horizontal analysis. Investors would use this type of method to determine whether or not there has been an increase or decrease in percentage or amount using the income statements from the previous years as the base. While comparing financial performances over multiple periods, it can reveal any accounting errors that may need to be analyzed and fixed (Web Finance, Inc. 2015). There is also a vertical analysis that would be useful for cost management which is used to compare the expenses to revenues and the proportions of items on a balance sheet over multiple periods. It would be nice if businesses were able to predict the future for their business, but a comparative analysis can be used to predict future performances. It may not be the best predictions, but it is something that businesses can analyze and used.
Ratio Analysis
Ratio analysis is a vital tool in conducting a fundamental analysis as it allows the management to evaluate a firmʻs operational and financial performance. Ratio analysis calculates the proportional relationship of numbers found in financial statements. While a company can be profitable, a ratio analysis can point out issues in specific areas such as procurement, sales or...
ACC 561
September 04, 2015
Financial Statement Analysis
Financial statements include balance sheets, income statements, and statement of cash flows. They are reports that show a lot about an organization’s financial conditions, results, and cash flows and are very useful. There are various approaches an organization can take to analyze their financial statements, which include comparative and ratio analysis. The purpose of each approach is different, but they both have its importance.
Comparative Analysis
Comparative analysis is a method that can be used to identify any new trends when the ratio or data for something specific, such as an item from multiple periods are presented for a straight across comparison, which is also known as a horizontal analysis. Investors would use this type of method to determine whether or not there has been an increase or decrease in percentage or amount using the income statements from the previous years as the base. While comparing financial performances over multiple periods, it can reveal any accounting errors that may need to be analyzed and fixed (Web Finance, Inc. 2015). There is also a vertical analysis that would be useful for cost management which is used to compare the expenses to revenues and the proportions of items on a balance sheet over multiple periods. It would be nice if businesses were able to predict the future for their business, but a comparative analysis can be used to predict future performances. It may not be the best predictions, but it is something that businesses can analyze and used.
Ratio Analysis
Ratio analysis is a vital tool in conducting a fundamental analysis as it allows the management to evaluate a firmʻs operational and financial performance. Ratio analysis calculates the proportional relationship of numbers found in financial statements. While a company can be profitable, a ratio analysis can point out issues in specific areas such as procurement, sales or...