Ratio, Vertical, and Horizontal Analyses Checkpoint
March 2, 2013
Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. There are a variety of tools used to evaluate significance of financial statement data. Three of the most commonly used tools are the ratio analysis, horizontal analysis, and vertical analysis (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Ratio analysis is the method of analyzing data to determine the overall strength of a business. These ratios are most useful when compared to other ratios such as the comparable ratios of similar businesses or the historical trend of a singe business or several business cycles (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Horizontal analysis is a type of fundamental analysis in which certain financial information is used to asses a company's performance over a period of time. It can be assessed by comparing the same items or ratios or it can be performed on multiple companies in the same industry. This is done to asses a company's performance compared to competitors (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Vertical analysis is a method of analyzing financial statements in which each item in the statement is represented as a percentage of a single larger item. Vertical analysis makes comparisons between two or more companies in the same industry easier. It also allows a company to weigh current reports with reports from the past. This way they can see areas that may need improvement and do something to improve (Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008).
The current ratio for any company is calculated by the use of the following mathematical equation: Current assets/current liabilities
PepsiCo, Inc. 2005
PepsiCo, Inc. 2004
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