MGMT 20000 Chapter Notes - Chapter 12: Gross Margin, Accounts Receivable, Income Statement
30 Jun 2016
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Part a comparison of financial accounting information. Vertical analysis: express each item in a financial statement as a percentage of the same base amount. Income statement items expressed as a percentage of sales. Balance sheet items expressed as a percentage of assets. Horizontal analysis: used to analyze trends in financial statement data for a single company over time o. Part b using ratios to asses risk and profitability. Learning objective 3 use ratios to analyze a company"s risk. Measures how many times receivables are collected during the year. Low ratio = trouble collecting its accounts receivable. High ratio = indicates quick collection of receivable into cash o. Days it takes to convert receivables into cash. Measures how many times average inventory is sold during the year. High ratio = indicates that inventory is selling quickly. Extremely high ratio = might indicate lost sales due to inventory shortages o. High ratio indicates sufficient assets to cover current liabilities o.
