What traumatic event does Zitkala-Sa describe at the school?

The forcible cutting of her long hair

Why was the cutting of her hair so humiliating to Zitkala-Sa?

Among her people, shingled hair was worn by cowards and mourners

What is analysis of financial statements?

It is the process of critically evaluating the financial information in the statements to understand the firm's operations and make decisions.

What do the terms analysis and interpretation mean?

Analysis means the methodical classification and simplification of financial data; interpretation means explaining its meaning and significance.

What is a comparative statement?

A statement that shows the figures of two or more periods together with the absolute and percentage changes between them.

Why is comparative analysis called horizontal analysis?

Because it compares the same item across two or more periods, reading across the rows.

What is a common-size statement?

A statement in which each item is expressed as a percentage of a common base, such as revenue from operations or total assets.

Why is common-size analysis called vertical analysis?

Because each item is expressed as a percentage of a base within the same period, read down a column.

What base is used for a common-size statement of profit and loss?

Revenue from operations is taken as the base (100%).

What does trend analysis study?

The percentage change in each item over several years measured against the figure of a chosen base year.

State two limitations of financial analysis.

It ignores price-level changes and considers only monetary information, ignoring qualitative aspects.

Analysis of Financial Statements

Q: Name the main tools of financial analysis.

Comparative statements, common-size statements, trend analysis, ratio analysis and cash-flow analysis.

Class 12 Accountancy · Accountancy Part II · Chapter 4

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Summary

Analysis of financial statements is the process of critically evaluating the information in the financial statements to understand the operations of a firm and to make decisions about it. It studies the relationship among various financial facts and interprets them to gain insight into the firm's profitability and operational efficiency. The term includes both analysis, the methodical classification and simplification of data, and interpretation, the explanation of its meaning and significance; the two are complementary. Financial analysis is useful to finance managers, top management, trade payables, lenders, investors, labour unions and others, each with a different purpose. The main tools are comparative statements, common-size statements, trend analysis, ratio analysis and cash-flow analysis. Comparative statements, a form of horizontal analysis, show the figures for two or more periods together with the absolute and percentage changes between them. Common-size statements, a form of vertical analysis, express each item as a percentage of a common base—revenue from operations for the statement of profit and loss and total assets for the balance sheet—so that firms of different sizes can be compared. Trend analysis studies the percentage change in items over several years relative to a base year. Financial analysis is limited because it ignores price-level changes and qualitative factors, and depends on the reliability of the underlying statements.

Meaning and significance of financial analysisTools of financial analysisComparative statements (horizontal analysis)Common-size statements (vertical analysis)Trend analysis and limitations

Key terms

Financial Statement Analysis

The critical evaluation of financial information to understand a firm's operations and make decisions about it.

Comparative Statements

Statements showing the figures of two or more periods side by side with the absolute and percentage changes; a form of horizontal analysis.

Common-size Statements

Statements expressing each item as a percentage of a common base; a form of vertical analysis.

Trend Analysis

A technique that studies the percentage change in items over several years in relation to a base year.

Horizontal Analysis

Analysis comparing financial data across two or more periods, as in comparative statements.

Vertical Analysis

Analysis expressing items as a proportion of a common base within a single period, as in common-size statements.

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Analysis of financial statements means:

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Analysis of Financial Statements

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