Analyzing financial statements involves evaluating three characteristics.
- Liquidity
- Profitability
- Solvency
Need for comparative analysis
- Intra-company basis
- Industry averages
- Inter-company basis
Tools of analysis
1.Horizontal analysis evaluates a series of financial statement data over a period of time.
2. Vertical analysis evaluates financial statement dat
(2) Trend income statements
(%) 2009 2008 2007 2006 2005
sales 338 367 191 143 100
gross profit 4 301 409 174 100
operating income -330 254 479 179 100
income before income tax -906 128 482 169 100
net income -15,685 2,123 7,877 1,120 100
From comparative income statements and trend income statements above, we can see that net income in 2009 plunged dramatically. However, compare to 2
How did POSCO manage to remain this rate of ROA and ROCE?
1) Expanding facilities and increasing investments in mine exploration.
2) Engaging in the rapidly growing Southeast Asia market and also the US market.
3) Strengthening global automotive steel sales and marketing infrastructure.
As a result, in 2008, POSCO accomplished record-setting production of 34.7 million tons and sales of 33
earnings changes and earnings levels are relatively smooth
Definitions of smoothness
The expected number of observations in any interval is the average of the number of observations in the two adjacent intervals
Previous study
Consider specific incentives
Assuming a particular method
Cross sectional approach
Large set of potential earnings manipulators
Focused on avoidance of los
earnings management, fraud, manipulating financial markets, excessive payments made to CEOs and top management, bribery and many others. Such financial activities could be practiced for the interests of the company and its shareholders but they could also be anti-competitive or offend against the values of the society.
MCI, Inc., an American telecommunications subsidiary of Verizon Commu