Common-Size "Vertical" Analysis & Trend Analysis

Front

Which financial statement tells the story about a company's profitability?

Back

P&L (Income Statement)

Explanation:
The P&L (Income Statement) details a company's revenues and expenses, ultimately showing its profitability over a specific period. This makes it the primary financial statement for assessing profitability.

Answer explanation

The P&L (Income Statement) details a company's revenues and expenses, ultimately showing its profitability over a specific period. This makes it the primary financial statement for assessing profitability.

Front

Which statement provides information about how much cash came in or went out of the company?

Back

Statement of Cash Flow

Explanation:
The Statement of Cash Flow provides detailed information about cash inflows and outflows, making it the correct choice for understanding how much cash came in or went out of the company.

Answer explanation

The Statement of Cash Flow provides detailed information about cash inflows and outflows, making it the correct choice for understanding how much cash came in or went out of the company.

Front

Why is it important to analyze both absolute and relative changes in financial analysis?

Back

Because either may appear large or small on its own.

Explanation:
Analyzing both absolute and relative changes is crucial because either can seem significant or insignificant on its own. This perspective helps in making informed financial decisions and understanding the true impact of changes.

Answer explanation

Analyzing both absolute and relative changes is crucial because either can seem significant or insignificant on its own. This perspective helps in making informed financial decisions and understanding the true impact of changes.

Front

What does analyzing absolute and relative changes together help prevent?

Back

Overlooking small but significant changes

Explanation:
Analyzing absolute and relative changes together helps prevent overlooking small but significant changes that may not be apparent when looking at either type of change in isolation.

Answer explanation

Analyzing absolute and relative changes together helps prevent overlooking small but significant changes that may not be apparent when looking at either type of change in isolation.

Front

Which analysis is concerned with expressing all numbers as a percentage of a common size?

Back

Common-Size Vertical Analysis

Explanation:
Common-Size Vertical Analysis expresses all numbers as a percentage of a common size, typically total revenue or total assets, allowing for easy comparison across different periods or entities.

Answer explanation

Common-Size Vertical Analysis expresses all numbers as a percentage of a common size, typically total revenue or total assets, allowing for easy comparison across different periods or entities.

Front

Which analysis involves comparing everything to one number to see proportions?

Back

Common-Size Vertical Analysis

Explanation:
Common-Size Vertical Analysis compares each line item in financial statements to a base figure, typically total revenue or total assets, to analyze proportions and relative sizes.

Answer explanation

Common-Size Vertical Analysis compares each line item in financial statements to a base figure, typically total revenue or total assets, to analyze proportions and relative sizes, making it the correct choice.

Front

Which analysis converts each item on a financial statement to a percentage using a common denominator for one time period?

Back

Common-Size Vertical Analysis.

Explanation:
Common-Size Vertical Analysis converts each item on a financial statement to a percentage of a common denominator, typically total revenue or total assets, allowing for easy comparison within a single time period.

Answer explanation

Common-Size Vertical Analysis converts each item on a financial statement to a percentage of a common denominator, typically total revenue or total assets, allowing for easy comparison within a single time period.

Front

What should you be concerned with in Common-Size Vertical Analysis?

Back

Proportions and whether they make sense.

Explanation:
In Common-Size Vertical Analysis, you should focus on proportions and whether they make sense. This helps in understanding the relative size of each component in relation to the total, rather than just absolute changes.

Answer explanation

In Common-Size Vertical Analysis, you should focus on proportions and whether they make sense. This helps in understanding the relative size of each component in relation to the total, rather than just absolute changes.

Front

What is a typical common-size base for a Balance Sheet in Vertical Analysis?

Back

Total Assets

Explanation:
In vertical analysis of a balance sheet, Total Assets is the common-size base. It allows for comparison of individual line items as a percentage of total assets, providing insight into the structure of the company's finances.

Answer explanation

In vertical analysis of a balance sheet, Total Assets is the common-size base. It allows for comparison of individual line items as a percentage of total assets, providing insight into the structure of the company's finances.

Front

What is the focus of Trend Analysis?

Back

Analyzing overall direction over multiple periods.

Explanation:
Trend Analysis focuses on analyzing the overall direction over multiple periods, allowing for insights into patterns and changes over time, rather than just comparing two specific time periods.

Answer explanation

Trend Analysis focuses on analyzing the overall direction over multiple periods, allowing for insights into patterns and changes over time, rather than just comparing two specific time periods.