Analysis of Financial Statements Analysis of Financial Statements is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company. It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability. Trend Analysis Trend Analysis is a technique of performance measurement and evaluation where the performance of the current year is compared to that of a base year and the direction of the results are analyzed. The movement of the results can be interpreted as a positive or favorable trend or as a negative or unfavorable trend. Favorable trends mean increase in revenues and decrease in costs and are hence subjective in nature. Unfavorable trends mean decrease in revenues and increase in costs and are also subjective in nature. Trend analysis helps in evaluation of repetitive behavior as well as evaluation of effectiveness of strategies implemented by allowing analysis of performance over time. Whether investment can be made in the company.

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Chapter 17, Problem P17.1CP

To determine

Introduction:

Analysis of Financial Statements

Analysis of Financial Statements is a study of several key metrics of a company based on the data presented in its’ financial statements with an objective to evaluate the financial health of a company.

It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

Trend Analysis

Trend Analysis is a technique of performance measurement and evaluation where the performance of the current year is compared to that of a base year and the direction of the results are analyzed.

The movement of the results can be interpreted as a positive or favorable trend or as a negative or unfavorable trend.

Favorable trends mean increase in revenues and decrease in costs and are hence subjective in nature. Unfavorable trends mean decrease in revenues and increase in costs and are also subjective in nature.

Trend analysis helps in evaluation of repetitive behavior as well as evaluation of effectiveness of strategies implemented by allowing analysis of performance over time.

Whether investment can be made in the company.

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On 10/6/2024, company A sells goods to Customer C for €20,000 with an agreed credit of two months. On 31/12/2024, in the context of investigating the collectability of its receivables, the company estimates that it will only collect €10,000 from customer C and forms a provision for doubtful debts for the remaining amount. Finally, on 30/3/2025, company A receives from customer C the amount of: a. €9,000 b. €11,000. You are requested to comment on the impact of the above collection cases a. 9000 b. 11,000 on the income statement for fiscal year 2025, justifying your position.

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