Financial Statement Analysis
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Financial Statement
Analysis
How can we use the
financial statement results
SMART TOUCH LEARNING, INC.
to analyze a company?
Balance Sheet
May 31, 2013
Assets
Liabilities
Current assets:
Current liabilities:
Cash
$ 4,800
Accounts payable
$ 48,700
Accounts receivable
2,600
Salary payable
900
Inventory
30,500
Interest payable
100
Supplies
600
Unearned service revenue
400
Prepaid rent
2,000
Total current liabilities
50,100
Total current assets
$ 40,500
Long-term liabilities:
Plant assets:
Notes payable
20,000
Furniture
$18,000
Total liabilities
70,100
Less: Accumulated depreciation—furniture
300
17,700
Stockholders’ Equity
Building
48,000
Less: Accumulated depreciation—building
47,800
200
Common stock
30,000
Retained earnings
5,900
Total plant assets
65,500
Total stockholders’ equity
35,900
Total assets
$106,000
Total liabilities and stockholders’ equity
$106,000
Learning Objectives
1
Perform a horizontal analysis of financial statements
3
Prepare and use common-size financial statements
2
4
Perform a vertical analysis of financial statements
Compute and evaluate the standard financial ratios
N
ow that you have learned some of the “how-tos” of financial statement prepara-
tion, you may be asking, “How can I use financial statements in a meaningful way
to help me manage my company better? How can I compare my company’s results with
companies that do what I do?”
In this chapter, you’ll learn tools that allow users to see beyond the pure “num-
bers” on the financial statements and translate them into meaningful analysis. We’ll
start by analyzing the statements of Smart Touch Learning and finish the chapter by
analyzing Greg’s Tunes.
Investors and creditors cannot evaluate a company by examining only one year’s data.
This is why most financial statements cover at least two periods. In fact, most financial
analysis covers trends of three to five years. This chapter shows you how to use some of
the analytical tools for charting a company’s progress through time. These tools can be
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