Financial statements can be used by shareholders, creditors, and other interested parties to analyze a corporation’s liquidity, profitability, and financial structure compared to prior years and other similar companies. As part of this analysis, financial evaluation tools are used. Some of these tools are discussed in this chapter.
Learning Objectives
LO1 – Describe ratio analysis, and explain how liquidity, profitability, leverage, and market ratios are used to analyze and compare financial statements.
LO2 – Describe horizontal and vertical trend analysis, and explain how they are used to analyze financial statements.
LO3 – (Appendix) Describe the Scott formula and explain how it is used to analyze financial statements.
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