Explanation Memo From: XYZ, To: ABC, Sub: Financial Analysis and Ratios a. Trend Percentages: Trend percentage is an extended feature of horizontal analysis that enables the user to get the trend for a particular account during a relatively long time period. It makes the base year’s amount as 100 and then calculates the percentage for the number of following years. Formula: Trend percentage = Net Amount of a financial statement data Net anount of base year × 100 The trend analysis is used to calculate the percentage change in financial data over period longer than two years. b. Common-size financial statement: It is a financial statement analysis under which each item of the financial statement is compared to the total of that statement. The total of the statement is considered as 100% and each item is compared with the total of the statement. Common-size balance sheet : A Common-size balance sheet indicates the look of the each item of the balance sheet as a percentage of the total of the balance sheet. For example, the value of the Equipment is shown as a percentage of total asset by considering the total asset as 100%. In balance sheet analysis the total asset and equity is considered as 100%, and each of the item is compared with the total. Common-size Income Statement: Common-size income statement is a financial statement which shows the percentages of each item of income statement as a percentage of net sales. Use of common-size statements: The common-size income statement helps in comparing the profitability of one firm with the other firm. The common-size balance sheet is used to compare the solvency and liquidity of one firm with another. Common-size statements are used to compare the profitability of one firm with another firm. Common-size statements are used to compare the solvency and liquidity of one firm with another firm. c. Common profitability, liquidity, and solvency ratios: Profitability ratios: Gross profit percentage: Profit margin identifies the gross profit generated by per dollar of revenue or sales. Return on sales: Return on sales ratio identifies the net income generated by per dollar of revenue from sales. It is also called as profit margin ratio. Asset turnover: Asset turnover identifies the efficiency of the assets to produce sales. Return on assets: Return on assets is used to identify the overall earning power of the company. Return on common stockholders’ equity: Return on equity evalauate the profitability of stockholder’s investment

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Author: FERRIS

Publisher: Cambridge

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Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 13, Problem 6EYK

To determine

Write a memo stating the following items:

a. State the meaning of trend analysis and how it is helpful.

b. State the meaning of common size statement constructed and discusses their issues.

c. State the meaning of few common profitability, liquidity, and solvency ratio, and discuss how they are interpreted.

d. State some limitations of financial statement analysis.

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Chapter 13 Solutions

Financial Accounting for Undergraduates

Ch. 13 - Prob. 1SSQ Ch. 13 - Prob. 2SSQ Ch. 13 - Prob. 3SSQ Ch. 13 - Prob. 4SSQ Ch. 13 - Prob. 5SSQ Ch. 13 - Prob. 6SSQ Ch. 13 - Prob. 7SSQ Ch. 13 - Prob. 8SSQ Ch. 13 - Prob. 9SSQ Ch. 13 - Prob. 10SSQ

Ch. 13 - Prob. 11SSQ Ch. 13 - Prob. 12SSQ Ch. 13 - Prob. 1Q Ch. 13 - Prob. 2Q Ch. 13 - Prob. 3Q Ch. 13 - Prob. 4Q Ch. 13 - Prob. 5Q Ch. 13 - Prob. 6Q Ch. 13 - Prob. 7Q Ch. 13 - Prob. 8Q Ch. 13 - Prob. 9Q Ch. 13 - Prob. 10Q Ch. 13 - Prob. 11Q Ch. 13 - Prob. 12Q Ch. 13 - Prob. 13Q Ch. 13 - Prob. 14Q Ch. 13 - Prob. 15Q Ch. 13 - Prob. 16Q Ch. 13 - Prob. 17Q Ch. 13 - Prob. 18Q Ch. 13 - Prob. 19Q Ch. 13 - Prob. 20Q Ch. 13 - Prob. 21Q Ch. 13 - Prob. 22Q Ch. 13 - Prob. 23Q Ch. 13 - Prob. 1SE Ch. 13 - Prob. 2SE Ch. 13 - Prob. 3SE Ch. 13 - Prob. 4SE Ch. 13 - Prob. 5SE Ch. 13 - Prob. 6SE Ch. 13 - Prob. 7SE Ch. 13 - Prob. 8SE Ch. 13 - Prob. 9SE Ch. 13 - Prob. 10SE Ch. 13 - Prob. 11SE Ch. 13 - Prob. 12SE Ch. 13 - Prob. 13SE Ch. 13 - Prob. 14SE Ch. 13 - Prob. 15SE Ch. 13 - Prob. 1AE Ch. 13 - Prob. 2AE Ch. 13 - Prob. 3AE Ch. 13 - Prob. 4AE Ch. 13 - Prob. 5AE Ch. 13 - Prob. 6AE Ch. 13 - Prob. 7AE Ch. 13 - Prob. 8AE Ch. 13 - Prob. 9AE Ch. 13 - Prob. 10AE Ch. 13 - Prob. 11AE Ch. 13 - Prob. 1BE Ch. 13 - Prob. 2BE Ch. 13 - Prob. 3BE Ch. 13 - Prob. 4BE Ch. 13 - Prob. 5BE Ch. 13 - Prob. 6BE Ch. 13 - Prob. 7BE Ch. 13 - Prob. 8BE Ch. 13 - Prob. 9BE Ch. 13 - Prob. 10BE Ch. 13 - Prob. 11BE Ch. 13 - Prob. 1AP Ch. 13 - Prob. 2AP Ch. 13 - Prob. 3AP Ch. 13 - Prob. 4AP Ch. 13 - Prob. 5AP Ch. 13 - Prob. 6AP Ch. 13 - Prob. 7AP Ch. 13 - Prob. 8AP Ch. 13 - Prob. 9AP Ch. 13 - Prob. 10AP Ch. 13 - Prob. 1BP Ch. 13 - Prob. 2BP Ch. 13 - Prob. 3BP Ch. 13 - Prob. 4BP Ch. 13 - Prob. 5BP Ch. 13 - Prob. 6BP Ch. 13 - Prob. 7BP Ch. 13 - Prob. 8BP Ch. 13 - Prob. 9BP Ch. 13 - Prob. 10BP Ch. 13 - Prob. 1EYK Ch. 13 - Prob. 2EYK Ch. 13 - Prob. 3EYK Ch. 13 - Prob. 4EYK Ch. 13 - Prob. 5EYK Ch. 13 - Prob. 6EYK Ch. 13 - Prob. 7EYK Ch. 13 - Prob. 8EYK Ch. 13 - Prob. 9EYK Ch. 13 - Prob. 10EYK Ch. 13 - Prob. 11EYK

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