Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 9, Problem 1Q
1. Why are ratios and trends used in financial analysis?
Expert Solution & Answer
To determine
Explain the reasons for using ratios and trends in financial analysis.
Explanation of Solution
Financial analysis: Financial analysis means evaluating financial statements to ascertain performance such as profitability, solvency and liquidity of a business.
Ratios and trends are the necessary tools of financial analysis. Ratios and trends help the interested users to make informed decisions. Ratios and trends are explained as follows:
Ratios: Ratio analysis expresses the relationships between different items reported in a set of financial statements. These are used to evaluate capabilities, profitability, and overall performance of a company. The absolute amounts ascertained in the trends often convey little meaning. These ratios convey the results in relative term which are useful for decision making. Analysts can assess the profitability, solvency and liquidity of a business using this tool.
Trends: Trends are a tool in financial analysis to know how the company has been performing over the time period and with respect to its industry. Trends during the months, quarters or years are useful for analysing the financial statements of a company. These trends reveal the results in absolute terms and are helpful when comparing those results with other companies or with different time periods. Horizontal analysis and vertical analysis are examples of trends.
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Chapter 9 Solutions
Survey Of Accounting
Ch. 9 - 1. Why are ratios and trends used in financial...Ch. 9 - Prob. 2QCh. 9 - Prob. 3QCh. 9 - 4. What is the significance of inventory turnover,...Ch. 9 - 5. What is the difference between the current...Ch. 9 - Prob. 6QCh. 9 - Prob. 7QCh. 9 - Prob. 8QCh. 9 - 9. What are some limitations of the earnings per...Ch. 9 - Prob. 10Q
Ch. 9 - Prob. 11QCh. 9 - Prob. 12QCh. 9 - Prob. 13QCh. 9 - Prob. 14QCh. 9 - Exercise 9-1 Horizontal analysis Winthrop...Ch. 9 - Prob. 2ECh. 9 - Prob. 3ECh. 9 - Prob. 4ECh. 9 - Prob. 5ECh. 9 - Prob. 6ECh. 9 - Prob. 7ECh. 9 - Prob. 8ECh. 9 - Comprehensive analysis The December 31, 2019,...Ch. 9 - Prob. 10ECh. 9 - Prob. 11ECh. 9 - Prob. 12ECh. 9 - Ratio analysis Compute the specified ratios using...Ch. 9 - Prob. 14ECh. 9 - LO 13-2, 13-3, 13-4, 13-5 Exercise 13-15A...Ch. 9 - Prob. 16PCh. 9 - Prob. 17PCh. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Problem 9-21 Ratio analysis Selected data for...Ch. 9 - Prob. 22PCh. 9 - Problem 9-23 Ratio analysis The following...Ch. 9 - Prob. 24PCh. 9 - Prob. 1ATCCh. 9 - Prob. 3ATCCh. 9 - ATC 9-5 Ethical Dilemma Making the ratios look...
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