Reviewing and Analyzing Financial 
    Statements
  The Financial Statements are a powerful tool to monitor business performance. 
  Financial Statement Analysis produces actionable information for the business.
  Income Statement Analysis
  
   Profitability Ratios (Vertical Analysis) (ability to generate income, after expenses)
  
   Comparative (Compare actual to actual – prior year to current year)
  
   Benchmark (Compare performance to a pre-set standard; budget or industry norm)
  Balance Sheet Analysis
  
    Vertical Analysis (Understanding the make-up of Assets and Liabilities)
  
   Comparative (Compare actual to actual - prior year to current year)
  
   Benchmark (Compare performance to a pre-set standard; budget or industry norm)
           Vertical Analysis of the Income Statement
                                                                                                   Here is a good 
                                                                                                   example of a vertical 
                                                                                                   analysis of the
                                                                                                   Income Statement.
                                                                                                   It includes:
                                                                                                   - Profitability Ratios*
                                                                                                   - Comparative to 
                                                                                                      Prior Year
                                                                                                   •   The base for calculation is 
                                                                                                   always net sales
       Key Measures for the Income 
                Statement
  1. Gross Profit Margin – Profitability after including costs of product sold
  (Revenue – cost of product sold = Gross Profit)
  2. Income from Operations – Profitability including all costs of doing business
  (Gross Profit – Operating Expenses (rent, insurance, administration) = Income 
  from Operations)
    Vertical Analysis of the Balance 
    Sheet
   Vertical analysis of the Balance Sheet uses Total Assets and Total Liabilities and Stockholder’s Equity as 
   the Base to understand the components of the Balance Sheet
  Horizontal Analysis of the Income Statement & Balance Sheet
  Horizontal Analysis uses comparative changes over time to understand performance. In 
  this example a year over year comparison is used