This essay focuses on selecting employees for positions. Certain ratios indicate the ability to repay principal and interest. A stockholder, on the other
Module 1Horizontal and Vertical Analysis
LO 1Explain the various limitations and considerations in financial statement analysis.
Various groups have different purposes for analyzing a company’s financial statements. For example, a banker is interested primarily in the likelihood that a loan will be repaid. Certain ratios indicate the ability to repay principal and interest. A stockholder, on the other hand, is concerned with a fair return on the amount invested in the company. Again, certain ratios are helpful in assessing the return to the stockholder.
The managers of a business also are interest in the tools of financial statement analysis because various outside groups judge managers by using certain key ratios. Fortunately, most financial statements provide information about financial performance. Publicly held corporations are require to include in their annual reports a section that reviews the past year, with management’s comments on its performance as measured by selected ratios and other forms of analysis.
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