ACC281: Accounting Concepts for Health Care Professionals
Methods of Analysis
March 29, 2010
Methods of Analysis 2 Financial statements are records that provide information of an organization or business financial status and is a measurement of the fiscal or quarterly performance of a company. They are written evidence of reporting obligations and are used for making decisions. There are different methods for examining the financial statement and balance sheet. Vertical analysis, horizontal analysis and financial ratios are part of financial statement analysis. Horizontal analysis are amounts of trends and changes noted on a financial statements from past years or quarters within a year. The amounts in dollar helps users of financial statements and auditors to understand changes in finances, whether positive or negative. An example for horizontal analysis would be sales from 2008 that total $500,000 and 2009 that total $900,000, sales increased to 180% from 2008 to 2009 an increase of 80%. In a base year the absolute dollar amount of financial statements of consecutive years is changed to a percentage of the base year dollar amount or trends of percentages. Absolute amounts of a horizontal analysis is a comparison of dollar amounts of operating expenses and other items over a period of time, quarterly or annually. This is a very important method when determining whether a company is spending to much or to little on needed items and if an opposing company has influences on a business such as increasing or reducing on cost of materials. “Percentage analysis involves computing the percentage relationship between two amounts “ (Edmonds), quarterly or annually, another way of horizontal analysis. In percentage analysis the absolute dollar amount is changed to percentage, 2008 that total...