Getting Started

In the last workshop, we studied the inner workings of the processes used to develop financial statements in order to become wiser consumers of the information they present. With this assignment, we are going to practice analyzing financial statements using horizontal (trend) analysis, vertical analysis, and ratio analysis. Used well, these techniques can give impressive insight into a company’s financial position. However, it can take significant skill and diligence to ensure we are gleaning the important points from a financial statement and not being misled.

Upon successful completion of this assignment, you will be able to:

• Understand the processes used to analyze financial statements.
• Apply financial analysis techniques to form constructive conclusions about a company’s financial position.

Resources

• Textbook: Analysis for Financial Management
• Textbook: Principles of Accounting: Volume 1, Financial Accounting
• Website: Connect
• File: Higgins Chapter 2 Slides
• File: Financial Ratios Cheat Sheet
• File: Assignment 3.4 Workbook
• File: Workshop Three Practice Problems Workbook

Background Information

In this course, we have repeatedly emphasized the importance of financial statements in decision making. Techniques are available that can help managers and other decision makers improve the insights they can gain by studying financial statements. Given the critical nature of the decisions often made based on financial data, it is certainly valuable for us to learn these techniques and to gain experience making judgments based upon them.

With this assignment, you will complete a series of short exercises designed to help you practice analyzing financial statements using horizontal analysis, vertical analysis, and ratio analysis. 

Instructions

1. Review the rubric to make sure you understand the criteria for earning your grade.
2. In your textbook, Analysis for Financial Management, read Chapter 2, “Evaluating Financial Performance.”
   1. Download and review Higgins Chapter 2 Slides to help you further understand the chapter.
3. In your textbook, Principles of Accounting, study Appendix A, “Financial Statement Analysis.”
   1. Study the provided practice problems and solutions in the Workshop Three Practice Problems Workbook to help you better understand the processes used to analyze financial statements. Review the Financial Ratios Cheat Sheet for the formulas you will need to complete the calculations.
4. Using the Assignment 3.4 Workbook (course exclusive), complete all nine of the following problems:
   1. Ratio Analysis: Problems 1 through 6
   2. Horizontal and Vertical Analysis: Problems 7 through 9
5. Be sure your Excel spreadsheet is prepared in a professional manner, with answers clearly indicated and all your calculations shown. Full credit will not be given if your process for arriving at the answer is not fully displayed, including any intermediate steps.
6. When you have completed your assignment, save a copy for yourself and submit a copy to your instructor by the end of the workshop.

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