Question

a) identify and describe at the least for categories of financial analysis?

b)comparative analysis an important tool of financial analysis i. explain the usefulness of comparative financial statement analysis. ii. describe how financial statement comparisons are effectively made. iii. discuss the necessary precautions an analyst should take in performing the comparative analysis?

c) ratio analysis an important tool of financial analysis. identify at least four rations using:

i. statement of financial position exclusively ii statements of income date exclusively. iii. both statement of financial position exclusively ii statements of income date exclusively.

d)perform a comparative analysis of Eastman corporation by completing the analysis below. describe and comment on any significant findings in your comparative analysis.

Answer 1

a)

Four types of financial analysis are:

1. Horizontal - Horizontal analysis means comparing the results of the company over 2 or more than 2 accounting periods. All the values are compared so as to look at improvements or failures.
2. Vertical - This analysis is primarily done using the Statement of Comprehensive Income ( Profit or Loss A/c) where each expense is shown as a percentage of the total income of the company.
3. Industry - Here, the average results of the industry in which the company is working in is taken. this is then compared with the results of the company to see whether it's performance is better or worse than the industry average.
4. Multi-Company - Here the financial statements of various companies are placed beside the said company's accounts to compare and learn.

b) Comparative financial statement analysis helps an organisation to understand how its performance is varying with passage of time and thus helps to understand whether performance is improving or declining

c) i) Current Ratio, Liquidity( Acid Test ) Ratio, Shareholders Equity Ratio, Debt-Equity Ratio

ii) Profit Margin, Price - Earnings Ratio, Gross Margin, Interest Coverage Ratio

iii) Return on Assets, Return on Equity, Asset Turnover Ratio, Inventory Turnover Ratio