Accounting Business Reporting for Decision Making

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

8.1 explain why different user groups require financial statements to be analysed and interpreted

8.2 describe the nature and purpose of financial analysis

8.3 apply the analytical methods of horizontal, trend, vertical and ratio analysis

8.4 define, calculate and interpret the ratios that measure profitability

8.5 define, calculate and interpret the ratios that measure asset efficiency

8.6 define, calculate and interpret the ratios that measure liquidity

8.7 define, calculate and interpret the ratios that measure capital structure

8.8 define, calculate and interpret the ratios that measure market performance

8.9 explain the interrelationships between ratios and use ratio analysis to discuss the financial

performance and position of an entity

8.10 discuss the limitations of ratio analysis.

CHAPTER 8

Analysis and

interpretation of

financial statements

Contents

Chapter 8 preview

8.1 Users and decision making

8.2 Nature and purpose of financial analysis

8.3 Analytical methods

8.4 Profitability analysis

8.5 Asset efficiency analysis

8.6 Liquidity analysis

8.7 Capital structure analysis

8.8 Market performance analysis

8.9 Ratio interrelationships

8.10 Limitations of ratio analysis