discussion post

Users of financial statements can apply several analytical tools in order to make intracompany and intercompany comparisons related to balance sheet information. Common-size analysis, rate of change analysis, and various ratios can be used to evaluate information on the balance sheet. Choose at least one analytical tool and discuss it in detail. Explain what the tool measures. Describe the steps involved in using the tool. Discuss the usefulness of the information that the tool provides the user. What are the pros and cons associated with the measure? Are there better ways to measure the performance under review?

Solution Preview

Company managers have a task of analyzing the company’s financial statements to compare the internal and external factors about the information contained on the balance sheet. Financial ratio analysis is the primary analytical tool that managers can incorporate.

Ratio analysis identifies how strong or weak the enterprise is regarding finance. Logically, this analysis establishes a relationship between information contained on the balance sheet, the income statement and finally interpreting the outcome thereof and concludes.

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