Which analysis is a technique for evaluating financial statement data that expresses each item in a financial statement in terms of a percent of a base amount?

CHAPTER 15

FINANCIAL STATEMENT ANALYSIS

CHAPTER LEARNING OBJECTIVES

1.Apply horizontal analysis and vertical analysis to financial statements. There are three

bases of comparison: (1) Intracompany, which compares an item or financial relationship with

other data within a company. (2) Industry, which compares company data with industry

averages. (3) Intercompany, which compares an item or financial relationship of a company

with data of one or more competing companies.

Horizontal analysis is a technique for evaluating a series of data over a period of time to

determine the increase or decrease that has taken place, expressed as either an amount or a

percentage.

Vertical analysis is a technique that expresses each item within a financial statement in terms

of a percentage of a relevant total or a base amount.

2.Analyze a company’s performance using ratio analysis. The formula and purpose of each

ratio is presented in Illustration 15–26.

3.Apply the concept of sustainable income. Sustainable income analysis is useful in

evaluating a company’s performance. Sustainable income is the most likely level of income to

be obtained by the company in the future. Discontinued operations and other comprehensive

income are presented on the statement of comprehensive income to highlight their unusual

nature.Items below income from continuing operations must be presented net of tax.

TRUE-FALSE STATEMENTS

1.Intracompany comparisons of the same financial statement items can often detect

changes in financial relationships and significant trends.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance

Measurement

2.Calculating financial ratios is a financial reporting requirement under IFRS.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance

Measurement

3.Measures of a company's liquidity are concerned with the frequency and amounts of

dividend payments.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance

Measurement

4.Analysis of financial statements is enhanced with the use of comparative data.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Reporting, AICPA PC: None, IMA: Performance

Measurement

5.Comparisons of company data with industry averages can provide some insight into the

company's relative position in the industry.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: None, IMA: Performance

Measurement

6.Vertical and horizontal analyses are concerned with the format used to prepare financial

statements.

Which is a technique for evaluating financial statements that expresses the relationship among selected items of financial statement data?

Is a technique that expresses each financial statement item as a percentage of a base amount also called common size analysis?

Which technique is used for financial statement analysis?

What technique for evaluating the data of financial statements is also known as trend analysis?