COMM-1107EL Chapter Notes - Chapter 13: Accounts Payable, Negative Number, Price–Earnings Ratio
3 Apr 2017
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Investors and creditors for both public and private corporations cannot evaluate a company by examining only one year"s data, therefore most financial statements cover at least 2 periods . The goal of financial analysis is to predict the future by examining the past. Percentage change = dollar amount of change/base-year amount x 100% Studying changes in the balance sheet accounts can enhance our understanding of the current and long-term financial position of the entity. Trend percentages are a form of horizontal analysis that explains how sales have changed over a 5-year period, what trend income from operations shows, etc. They are computed by selecting a base-year whose amounts are set equal to 100% The amount for each following year is expressed as a percentage of the base amount. Example of trend percentages for a four-year period for operating income, with 2008 as the base year:
