Accounting and Finance Foundations

Unit 11

Accounting and Finance Foundations Unit 11: Financial Analysis 837

Financial Analysis

23.3.5

Chapter 23

Analyzing Financial Statements—Review Questions

Answer the following discussion questions using your handouts and practice problems from Chapter 23.

1. a. List three analysis techniques we have studied.
   b. For each technique, thoroughly describe the method and how one determines whether the results
   are good or bad. Write this in paragraph form.


2. Preparing a comparative income statement allows a financial-statement user to see what three things?


3. Explain the benefits of comparing a company’s percentages with industry standards.


4. In vertical analysis, amounts are compared to a base amount. What is the base amount used for vertical
   analysis of:
   a. Items on the income statement?
   b. Asset amounts on the balance sheet?
   c. Liability or equity amounts on the balance sheet?


5. Ratio analysis is used to evaluate a company’s liquidity, profitability, and financial strength. Explain what
   is meant by a) liquidity; b) profitability; and c) financial strength.


6. Label the following ratios as a measure of either liquidity (L); profitability (P); or financial strength (F).
   a. Current Ratio
   b. Debt Ratio
   c. Inventory Turnover
   d. Profit Margin
   e. Return on Assets
   f. Earnings Per Share
   g. Price-Earnings Ratio

Student Assignment