Trend percentages
Trend percentages are a form of horizontal analysis. Trends indicated the direction a business is taking. Trend percentages are computed by selecting a base year whose amounts are set equal to 100%. The amount for each following year is stated as a percentage of the base amount.
Vertical Analysis: Shows the relationship of a financial-statement item to its base, which is the 100% figure. All items on the particular financial statement are reported as a percentage of the base.
Common-size statements: Report only percentages. In order to perform a vertical analysis, one must first convert the financial statements to common-size format. On a common-size income statement, each item is expressed as a percentage of the revenue (net sales) amount. Total revenue is common size.
Benchmarking: Compares a company to some standard set by others. Goal of benchmarking is improvement. Used when companies’ financial statements are converted to common-size.
*Analysts find the statement of cash flows more helpful for spotting weakness than for gauging success. Shortage of cash can throw a company into bankruptcy, but lots of cash doesn’t ensure success. Keys to healthy company Operations are the major source of cash (not a use of cash), investing activities include more purchases than sales of long-term assets, financing activities are not dominated by borrowing.
Book value per Share of Common Stock: common stockholder’s equity divided by the number of shares of common stock outstanding. Common equity =total equity –preferred equity. Recorded accounting for each share of common stock outstanding. Not helpful for investment analysis because it bears no relationship to market value and provides little information beyond what’s reported on the balance sheet. Lower the ration the more attractive to stock.
Economic Value Added®: Combines accounting and finance to measure whether operations have increased stockholder wealth. Cost of capital does not come from the
Vertical Analysis: Shows the relationship of a financial-statement item to its base, which is the 100% figure. All items on the particular financial statement are reported as a percentage of the base.
Common-size statements: Report only percentages. In order to perform a vertical analysis, one must first convert the financial statements to common-size format. On a common-size income statement, each item is expressed as a percentage of the revenue (net sales) amount. Total revenue is common size.
Benchmarking: Compares a company to some standard set by others. Goal of benchmarking is improvement. Used when companies’ financial statements are converted to common-size.
*Analysts find the statement of cash flows more helpful for spotting weakness than for gauging success. Shortage of cash can throw a company into bankruptcy, but lots of cash doesn’t ensure success. Keys to healthy company Operations are the major source of cash (not a use of cash), investing activities include more purchases than sales of long-term assets, financing activities are not dominated by borrowing.
Book value per Share of Common Stock: common stockholder’s equity divided by the number of shares of common stock outstanding. Common equity =total equity –preferred equity. Recorded accounting for each share of common stock outstanding. Not helpful for investment analysis because it bears no relationship to market value and provides little information beyond what’s reported on the balance sheet. Lower the ration the more attractive to stock.
Economic Value Added®: Combines accounting and finance to measure whether operations have increased stockholder wealth. Cost of capital does not come from the