Using the financial statement below: Discuss the importance and meaning of horiz

Question

Using the financial statement below: Discuss the importance and meaning of horizontal analysis. Discuss both the positive and negative trends presented in your company. Calculate the current ratio, quick ratio, cash to current liabilities ratio, over a two-year period. Discuss and interpret the ratios that you calculated. Discuss potential liquidity issues based on your calculations of the current and quick ratios. Are there any factors that could be erroneously influencing the results of the ratios? Based on your analysis would you recommend an individual invest in this company? What strengths do you see? What risks do you see? It is perfectly acceptable to state that you would recommend avoiding this company?

Explanation / Answer

1)A procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration. Investopedia explains 'Horizontal Analysis' For example, when you hear someone saying that revenues increased by 10% this past quarter, that person is using horizontal analysis. Horizontal analysis can be used on any item in a company's financials (from revenues to earnings per share), and is useful when comparing the performance of various companies. Read more: http://www.investopedia.com/terms/h/horizontalanalysis.asp#ixzz2IeDMFrQ9

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