• Horizontal analysis (Analyse key line items in each statement - e.g. revenue, total liabilities year by year) [Look for unusually high or low numbers.
  • Calculation - express change in % change. Calculation is ((this year - last year)/ last year)
  • This analysis provides an insight into the direction of movement in key accounts.E.g. is profit trending upwards or flatlining?
• Index 100 chart This metric may overlap with what you have done in Horizontal analysis. So only discuss new insights that Index 100 chart gives you.
  • (See textbook fig 8.4 and 8.5 - min 3 years required; but 5 years is better.
  • Calculation - divide each year's figure by the figure from the base year X 100
  • Main points: summarise why is this result important? Is there a tendency for too much borrowing, are sales falling, is NPAT increasing?
  • Useful to include:

Revenue

NPAT

Cash flow from operations

Total assets and liabilities

• Vertical analysis This metric measures how individual line items compare with a key account, such as sales.Vertical analysis is useful for companies that are trying to dive down costs, for example. But it won't give meaningful insights for every company. So use your discretion about undertaking vertical analysis. It is not a 'must do.'
  • Calculation: [year by year within each financial statement - useful to work out % of profit within various parts of the business expenses, assets, and liabilities; helps analyse company profitability. See textbook first 1/3 of Ch 8 and Excel example of 'Company B' to show the formula.)

• Put as much as you can on the same graph to get a visual comparison of important aspects of performance. The Index 100 chart does this anyway.

Use Financial Analysis to identify changes in key items, test with information from the financial statements and refer to relevant ratios. Draw evidence-based conclusions.