Accounting and Finance Foundations

Unit 11

Accounting and Finance Foundations Unit 11: Financial Analysis 847

Financial Analysis Student Assignment

Lesson 23.7 Analyzing Financial Statements in Excel

Financial statements can be easily misinterpreted. Although you can use a number of different analysis

tools to make sense of balance sheets and income statements, you must understand all of the elements of

the different financial statements and analysis tools to make sound judgments about a company’s perfor-

mance. In the same sense, you would need to be knowledgeable about the game of baseball to make a

judgment about a player’s ability. For example, if I told you that a player’s batting average is 0.400 and you

know nothing about the game, you might think that it is a poor average. However, baseball fans know that

batting 0.400 overall is terrific. To make good judgments about either baseball or financial statements, you

must collect and analyze all key information before making a decision.

Many businesses put their financial statements in a presentation or in writing for their board of directors or

investors. Using charts and graphs helps businesses to create a visual representation of the numbers.

Use the information from the writing prompt below to compare net income (or net loss), net worth, profit

margin, and debt ratio. Enter the amounts for each company into an Excel spreadsheet, and create a chart/

graph for each comparison.

Writing Prompt:

As an accountant, you have been asked to make financial inferences about different companies. Compare

the financial ratios of two similar companies (Lowe’s and Home Depot or Gap and American Eagle), and

explain their financial positions—using ratios to support your claims.

Chapter 23