Discuss the need for comparative analysis. Every item reported in a financial statement has significance. Identify the tools of financial statement analysis. 3 commonly used tools are utilized to evaluate the significance of financial statement data. Vertical analysis is a technique for evaluating financial statement data that expresses each item in a financial statement in terms of a percent of a base amount.
Ratio analysis expresses the relationship among selected items of financial statement data.
Explain and apply horizontal analysis. The purpose of horizontal analysis is to determine the increase or decrease that has taken place, expressed as either an amount or a percentage. After selecting a base year, we can measure all percentage increases or decreases from this base period amount. Alternatively, we can express current year sales as a percentage of the base period by dividing the current year amount. Describe and apply vertical analysis.