Katherine E Candelas
There are all kinds of information that is given in the world of accounting. Companies have to look at all many different forms of financial statements. In order for the company to understand them they have to find the different ways of utilizing analysis in the company. There are many different types of analysis that can be used in the work force. From horizontal to ratio to vertical you will know how to utilize it when a situation comes about.
Analysis in Accounting
Accounting is a good way for people to make useful decisions given the right information. When a company is comparing and contrasting their financial records there are different types of ways to accomplish this. In this paper you will find the different analysis ways to look at a financial statement as well as different scenarios on how they are used. Horizontal analysis is also known to companies as trend analysis (Edmonds, Mcnair,
Olds, Tsay, 2010). This type of analysis is the way in which to study the behavior of individual financial statement items over several periods of time. The time does not have to be within the same year. This type of analysis tends to focus more on the absolute dollar amount of an item.
Companies can utilize this way to find out what is doing well in business or even what is not doing well. The company can take a look at the increased revenue from one year and see that it went up or down by an absolute dollar amount or that it went up by a percentage (Edwards, et al.) This can let you know what you are doing right or wrong.
Vertical analysis utilize percentages more to compare individual components of financial statements. This type of analysis compares the items many times within the same period. The income statement, also known as common size income statement, requires that you convert each income statement component to a percentage of sales (Edwards, et al.). For example you can find a company that the cost of goods sold increased significantly as a percentage of sales. That means that the percentages of sales went up do to the increase of selling the goods. Ratio analysis studies the various relationships between different items reported in a set of financial statements. They calculate many different ratios for so many different reasons.
You have liquity ratios which show a company’s ability to pay off their short term debts. Current ratio is the absolute amount that you have working with right now. The current ratio can be calculates as current assets/current liabilities. Quick ratio is also known as acid test ratio in which is a conservative way of the current ratio. This type is