Page 182 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 10: Analysis of Financial Statements

1. Short-term trends capture rapidly emerging trends. Notes

2. Mid-term trends capture trends developing in between.
3. Long-term trends capture trends developing over long periods.
Trend analysis is also advantageous for (short-term) sales forecasting, growth rates, growth

percentages, trend significance, trending types, and so on. Use of trend analysis includes:
1. Sales trend analysis – revenue and volume analysis.
2. Product sales trend analysis.
3. Market trend analysis.
4. Equity (share) price trend analysis.
5. Accounting trend analysis.

6. Work force recruit forecasting.
7. Healthcare fraud detection and so on.

Timely identification of newly emerging trends is very important to businesses. Trend analysis

can also include the monitoring of a company’s financial ratios over a period of many years.
Self Assessment

Fill in the blanks:

15. In the analysis of financial information, trend analysis is the presentation of amounts as a
......................... of a base year.
16. Trend analysis can also include the monitoring of a company’s ..................... over a period
of many years.

Task In financial statement analysis, what is the basic objective of observing trends in

data and ratios? Suggest some other standards of comparison.

Case Study Evaluation of Ford on the basis of Accounting Trends

he success of Ford Motor Company, as well as other corporations, can be measured
by analyzing the two most important goals of management, maintaining adequate
Tliquidity and achieving satisfactory profitability. Liquidity can be defined as having

enough money on hand to pay bills when they are due and to take care of unexpected
needs for cash, while profitability refers to the ability of business to earn a satisfactory

income. To enable investors and creditors to analyze these goals, Ford Motor Company

distributes annual financial statements. With these financial statements, liquidity of Ford

Motor Company is measured by analyzing factors such as working capitol, current ratio,
quick ratio, receivable turnover, average days’ sales uncollected, inventory turnover and

average days’ inventory on hand; whereas profitability analyzes the profit margin, asset

turnover, return on assets, debt to equity, and return on equity factors.
Contd...

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