Quiz Ch 12 – T/F The Use of Trend Percentages in Horizontal Analysis
Financial Accounting
Thomas, Tietz, and Harrison
12th Edition
The horizontal analysis employs trend percentages.
The horizontal analysis employs trend percentages.
Vertical analysis is a useful tool for comparing companies of different sizes.
Benchmarking involves comparing a company’s performance to industry standards.
The horizontal analysis gives a comprehensive view of a business by showing changes in financial statement line items over time.
Common-size financial statements display figures only in dollar amounts.
Consistent growth in income from operations signifies revenue expansion, but potentially uncontrolled expenses, indicating future growth and increased company value.
The Management’s Discussion and Analysis section of the annual report contains the management’s rationale for fluctuations in sales.
The vertical analysis compares balance sheet line items between current and prior periods.
If a company’s net income is 15% of sales, then according to vertical analysis, the cost of goods sold must be 85% of sales.
Usually, a larger working capital implies a higher capability to settle debts.