Question

1. Discuss the differences between horizontal, vertical and ratio analysis?

2. What are three major reasons to hold cash in an organization?

Answer 1

HORIZONTAL ANALYSIS	VERTICAL ANALYSIS	RATIO ANALYSIS
HORIZONTAL ANALYSIS is like a trend where we go through all the given past years figures of same items.It looks at the numbers of years. Example of Horizontal Analysis are Trend Analysis,Comparative Statement etc.	VERTICAL ANALYSIS is the method of Financial Statement analysis in which every item in line is listed as a percentage. In Income Statement base is Gross Sales In Balance Sheet Base is Total assets or Liabilities In Cash flow statement is analysed by comparing cash inflow/outflow with percentage of Total Cash Inflow. It makes easier to compare Financial Statement of one Company with another by checking the proportion of Account Balance of each items. Example of Vertical Analysis is Common Size Statement.	Ratio analysis is done to analysis the company's liquidity,operational efficiency and profitability by comparing two or more variable of Financial Statement and Establish relationship between the Variables Example of ratio analysis are Current Ratio,Return on Equity,Inventory Turnover etc.

2) Three major purpose to hold Cash in the organisation are as follow:

A) Operational Requirement: To meet all the Payment obligation which occur as a result of operational activities such as payment of salaries and wages, purchase of raw material, transportation charges,pay taxes and dividend.

In other Words,Maintaining the Working Capital of the organisation Cash is must.

B) Emergency : Business is expose to many risks like fire, natural calamities causes,theft etc. There is an need to maintain certain reserve or cash in the hands of the organisation for emergency situations.

C) Opportunity Investment:

The Organisation is required to maintain the cash in order to grab the Opportunities which gives Profit or favor the organisation in long term.To take advantage of such situation organisation has to keep certain amount without disturbing any other budgeted plans.