Week 7 Checkpoint: Ratio, Vertical & Horizontal Analysis Jennifer Brooks
Three commonly used tools of financial system analysis are the horizontal analysis, the vertical analysis, and the ratio analysis. The horizontal analysis is a technique used for evaluating financial statement data over a period of time. This serves to show performance increase and decrease and may be expressed as an amount or percentage. The horizontal analysis is useful in comparing the results of a company over time to determine whether its financial situation is improving. Vertical analysis is a method in which each entry for each of the categories in a balance sheet is represented as a proportion of the total account. Vertical analysis refers to assets, liabilities and equities as a percentage as a whole. This analysis can be useful in comparing different sized companies to see which company has a greater percentage of liabilities, assets or equities. Ratio analysis is the calculation and comparison of ratios which are in the company’s financial statements. Ratio analysis can determine a company’s financial condition, its operations and whether the company is worth investing in.
Current ratio for 2005 = 31,727 (total assets) / 17,476 (total liabilities) = 1.8 Current ratio for 2004 = 27,987 (assets) / 14,464 (liabilities) = 1.9
Vertical analysis for 2005: (current assets) 10,454 / (total assets) 31,727 = 3.0% Vertical analysis for 2004: (current assets) 8,639 / (total assets) 27,987 = 3.2%
Horizontal analysis- (current assets 2005) 10,454 / (current assets 2004) 8,639 = 1.2% Total change in assets (current liabilities 2005) 9,406 / (current liabilities 2004) 6,752 = 1.3% Total change in assets
Current ratio for 2005 = 29,427 (total assets) / 9,836 (current liabilities) = 2.9 Current ratio for 2004 = 31,441 (total assets) / 11,133 (current liabilities) = 2.8
Vertical analysis: Current assets 10,250 / Total assets...