Which of the Following Statements About Financial Statement Analysis Is

question 13

Multiple Choice

Which of the following statements about financial statement analysis is incorrect?

• A)In horizontal percentage analysis, an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.
• B)The reason behind a financial statement ratio or percentage analysis result is usually self evident and does not require further study or analysis.
• C)Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.
• D)Vertical analysis compares two or more financial statement items within the same time perioD.Although ratios are easy to calculate and provide useful insights into business operations, when interpreting analytical results, users should consider limitations resulting from differing industry characteristics, differing economic conditions, and the fundamental accounting principles used to produce reported financial information. Horizontal analysis is the study of the behavior of individual financial statement items over several accounting periods. The analysis of a given item may focus on trends in the absolute dollar amount of the item or trends in percentages. When performing vertical analysis on an income statement, each item on the income statement is divided by sales. All items are presented as a percentage of sales. When performing vertical analysis on the balance sheet, each item on the balance sheet is divided by total assets. All items are presented as a percentage of total assets.

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