   Chapter 17, Problem 2DQ

Chapter
Section
Textbook Problem

What is the advantage of using comparative statements for financial analysis rather than statements for a single date or period?

To determine

Vertical Analysis: Vertical analysis is prepared to analyze the relationship among various financial statements with a particular base amount. Use the following formula to calculate vertical analysis percentage:

Formula:

Verticalanalysispercentage=(SpecificitemBaseamount)×100

This analysis is otherwise called as common-size statement or comparative statements.

Trend Analysis: Trend analysis is one form of horizontal analysis. It helps the user to know the changes that has been occurred for several years. When trend analysis is done, firstly certain value is taken as a base and further, other figures are matched to the proportion of the base figure.

Formula:

Trendpercentage=(AnyperiodamountBaseperiodamount)

To determine: the difference between comparative statements and trend analysis.

Explanation

Comparative statements are used to determine the changes that occur between dates and periods...

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