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Questions and Answers
Financial analysis examines a company's performance in the context of its industry and economic ______.
environment
Horizontal analysis is also known as ______ analysis.
trend
The formula for horizontal analysis is (Prior year - Current year / Prior year) X ______.
100
Vertical analysis is often referred to as ______-size analysis.
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In vertical analysis, the formula is (Comparison amount / Base amount) X ______.
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Horizontal analysis allows for comparison of a company's current financial status to its ______ status.
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Vertical analysis can help you compare one company's financial status to another's in the ______.
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Financial analysis plays a crucial role in driving sustainable ______ for organizations.
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The conclusion emphasizes the significance of financial analysis in guiding informed decisions on ______, credit, and strategic planning.
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The primary objectives of financial analysis include knowing the financial analysis and its ______.
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Study Notes
Financial Analysis Overview
- Financial analysis examines a company's performance relative to its industry and economic environment for informed decision-making.
- It plays a critical role in understanding financial health and guiding investments, credit, and strategic planning.
Horizontal (Trend) Analysis
- Compares specific financial information over different accounting periods.
- Useful for assessing changes in a company's financial status over time.
- Formula: (Prior year - Current year / Prior year) X 100 to determine the percentage change.
Vertical (Common-size) Analysis
- Analyzes financial statements by showing the relative size of each account compared to a total amount.
- Facilitates comparison across different companies or industry standards.
- Formula: (Comparison amount / Base amount) X 100 to express each item as a percentage of the total.
Differences Between Horizontal and Vertical Analysis
- Horizontal analysis enables comparison of a company's current financials to its past performance, highlighting trends over time.
- Vertical analysis compares financial elements of one company to another, providing insights into relative financial structure.
Conclusion
- Financial analysis is essential for comprehensively understanding a company's financial health.
- It fosters sustainable growth by enabling analysts to utilize skills and tools effectively for strategic decision-making.
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Description
Test your understanding of financial analysis with a focus on vertical and horizontal techniques. This quiz explores the significance of these methods and their application in evaluating a company's performance. Perfect for students and professionals looking to enhance their financial analysis skills.
