HELP! Match the term and the definition.
Homework Answers
The answer is given below:
| 1 | Each item in the financial statements is expressed as a percentage of an appropriate corresponding total or base amount, but within the same year. | Vertical analysis/ Common size analysis |
| 2 | Each item in the financial statements is expressed as a percentage of that same item in the financial statements of another year (base amount). | Horizontal analysis/ Comparative statement analysis |
| 3 | Financial statement items are converted to ratios for evaluating the performance and risk of a company. | Financial Ratio analysis |
Explanation:
1. Vertical analysis/ Common size analysis
Vertical analysis of financial statement is also called common size analysis. Here the each item in the financial statement is compared with a base figure or total within the statement. Each line item is given as a percentage of the base item.
2. Horizontal analysis/ Comparative statement analysis
Horizontal analysis is also known as comparative statement analysis. This analysis is used for comparing historical financial information like specific items, ratios, etc.. with one or more periods. It uses both percentage comparison and absolute comparisons in the analysis.
3. Financial Ratio analysis
Financial ratio analysis is used to compare the financial items in the statement and the result is interpreted to the understanding of users of financial statements. The ratio analysis is conducted mainly to identify the liquidity, solvency and profitability position of the company.
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HELP! Match the term and the definition.
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