MGCR 211 Lecture Notes - Lecture 14: Financial Statement, Asset Turnover, Profit Margin
Document Summary
Retrospective analysis is to determine past trends. Prospective analysis is forward looking: using the past trends to forecast future outcomes. Compares items in a company(cid:495)s financial statements over a certain period of time: base year selected and set to equal 100, amount of each following year is stated as a percentage of the base. Expresses each item in a financial statement as a percent of a base amount. Main advantage: the balance sheets of businesses of all sizes can be compared. For income statement, total revenue is the base. For balance sheet, total assets is the base. Common-size statements: reports only vertical analysis percentages, helps compare different companies, on common-size statement of earnings, all line items are expressed as percentages of net revenues. Ability to pay current liabilities: working capital, current ratio, quick (acid test) ratio. Measures ability to pay current liabilities with current assets. Measures ability to pay current liabilities with current assets. (easier to compare across companies.
