Acc 561 Week 2 Importance Of Comparative Analysis

Learning Team B Week 2 Reflection

Accounting: ACC/561

Learning Team B Week 2 Reflection
There are different type of methods used for financial statements and stocks. The comparative analysis shows company information from period to period, and radio analysis is an indicator of the company stability to meet their debt obligations, profitability, solvency and liquidity.
Importance of Comparative Analysis
Comparative analysis is a method used by investors, is used to identify new trends. The investors take the financial statements of determinate amount of years and consolidate them in one page. The analyst compares balance sheets from at least two successive years and analyses them to see changes in the financial statement.
By use of financial statements, a company can evaluate performance, activity, financing and liquidity. Some common ratios include the price-earnings ratio, debt-equity ratio, earnings per share, asset turnover and working capital” (“Investopedia”, 2012). Ratio analysis helps a business see its progress or failures across the board, it helps them figure out where they need to make improvements financially and business-wide. Ratio analysis is a useful management tool that will improve the understanding of financial results and trends over time, and provide key indicators of organizational performance” (Financial Ratio Analysis;
The result is shared as a percentage and/or an amount. The ratio analysis assesses the firm by the way of ratios that measure liquidity, solvency, and profitability. The comparative analysis compares the firm to itself, its competitors, and the industry by using the current year to the base year through a horizontal analysis and reaching the figures.
The vertical analysis of the comparative analysis uses the firm’s financial statements and expresses figures in a percentage to determine how fluid cash is if needed, its ability to endure over time, its profitability level. Profitability is the most frequently used ratio reviewed from a ratio analysis. The ratio analysis calculates the various ratios and assesses the firm to itself and is more of an internal analysis used by the firm to make educated business