Analysis

735 WordsFeb 7, 20123 Pages
ANALYSIS 1 Financial Analysis Shannon Wallace Accounting Concepts for Health Care Professional Latricia Carter January 23, 2012 ANALYSIS 2 Over the next couple of pages I will be discussing three types of financial analysis horizontal, vertical, and ratio. Horizontal analysis is also known as trend analysis, refers to studying the behavior of individual financial statement items over several accounting periods. Horizontal analysis uses absolute amounts and percentage analysis. Absolute analysis of particular financial statement items have many uses. Various national economic statistics, such as gross domestic product and the amount spent to replace productive capacity, are derived by combining absolute amounts reported by businesses. Comparing only absolute amounts has drawbacks because item differ from company to company and year to year. Percentage analysis involves computing the percentage relationship between two amounts. In horizontal percentage analysis a financial statement item is expressed as a percentage of the previous balance for the same item. Percentage analysis sidesteps the materiality problems by comparing different size companies by measuring changes in percentages. The financial information from horizontal analysis can help a company decide on which products to keep or get rid of a certain product. Example a company sells hot tamale and red hots. The hot tamale sales increased by twenty-five percent last year and the sales of red hots decreased by five percent. The company found out this information using horizontal analysis. An example of

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