When a Financial Statement Analyst Compares Various Figures on a Company's

question 65

Multiple Choice

When a financial statement analyst compares various figures on a company's income statement for a single year, and notes that a particular expense is 23% of sales, the analyst is performing

• A) Vertical analysis
• B) Horizontal analysis
• C) Credit analysis
• D) Solvency analysis

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Definitions:

Average Inventory

The mean value of inventory within a specific period of time, calculated to assess the amount of stock a business typically holds.

Acid-test Ratio

A stringent measure of liquidity that assesses a company's ability to cover its current liabilities with its most liquid assets, excluding inventory.

Receivables

Amounts due from individuals and other companies.

Vertical Analysis

A financial statement analysis method that expresses each item within a statement as a percentage of a base figure, facilitating comparison across periods.