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In a 2 to 3 page paper, evaluate the three methods of analysis: horizontal, vertical, and ratio as explained in Chapter 9 of your textbook. Summarize each method, and discuss how the financial information is used to make a particular decision. Provide a scenario in a health care situation in which a given method of analysis might be used.
Horizontal: "Horizontal analysis, also called trend analysis, refers to studying the behavior of indi- vidual financial statement items over several accounting periods. These periods may be several quarters within the same fiscal year or they may be several different years. The analysis of a given item may focus on trends in the absolute dollar amount of the item or trends in percentages. For example, a
However, for a more in-depth analysis of the relationships between these items, an analyst needs to examine certain commonly used financial ratios.
Provide a scenario in a health care situation in which a given method of analysis might be used.
In fundamental analysis, the comparison of a financial ratio or some other benchmark to the same ratio or benchmark for a different period of time. For example, horizontal analysis may investigate whether a company's earnings have gone up or down over a given quarter or year. Horizontal analysis may be used in making investment decisions to determine a company's financial health. In general, a horizontal analyst chooses a timeframe to match the timeframe of a possible investment.
Growth Ratios of Healthsouth Corp 2008-12 2009-12 2010-12 2011-12 Latest Qtr
Revenue % 5.30 4.46 -1.75 7.95 4.32
Year over Year 1.47 3.74 2.62 3.47 -
3-Year Average -14.18 -12.63 -9.02 -7.54 -
5-Year Averagr -7.47 -7.29 -7.14 -7.42 -
Operating Income % -
Year over Year 115.84 -32.66 19.50 18.27 3.84
3-Year Average 51.41 59.01 20.20 -1.64 -
5-Year Averagr - 3.34 3.93 12.73 -
Net Income % -
Year over Year -61.37 -62.44 848.31 -76.79 -
3-Year Average - - 11.22 -6.14 -
5-Year Averagr - - - - -
EPS % -
Year over Year -63.10 -70.61 975.32 -76.33 159.94
3-Year Average -