Horizontal analysis and vertical analysis,including the preparation of common-size financial statements,are important analytical techniques used to evaluate the strength of published financial statements.
Required:
a.Define:
b.How is each of these techniques helpful in the analysis of financial statements?
Definitions:
Stock Split
An action by a company to divide its existing shares into multiple shares to boost the liquidity of the shares, although not affecting the company's overall market capitalization.
Retained Earnings
The portion of a company's profits not distributed as dividends to its shareholders but kept in the company to reinvest in its core business or to pay debt.
Equity Section
The portion of a company's balance sheet that represents the owners' claims to the assets after all liabilities have been deducted.
Treasury Stock
Shares of a company's own stock that it has reacquired from shareholders and holds in its treasury.
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