Terms Introduced in the Chapter

The process of identifying the financial strengths and weaknesses of a firm by establishing relationships between the items of the Balance Sheet and the Statement of Profit and Loss. It makes the information contained in the financial stat …

Statements in which every item is expressed as a percentage of a common base — revenue from operations for the Statement of Profit and Loss, and total assets (or total liabilities) for the Balance Sheet — so the structure of the statements can be studied and firms of different si …

Statements that place the figures of two or more periods side by side and show the absolute change and the percentage change in each item, so the direction and extent of change over time can be seen. Th …

A technique that studies operating results and financial position over a series of years by expressing each year's figure as a percentage of a chosen base-year figure, revealing whether an item is rising, fallin …

A tool of analysis that describes the significant relationship between two items of the financial statements as a ratio, used to assess the profitability, solvency and efficiency of an enterprise. It is studied in d …

A statement of the actual inflows and outflows of cash and cash equivalents during a period, classified into operating, investing and financing activities. It is studied in detail in …

A comparison of a single firm's own figures across two or more periods (year to year), which comparative statements and trend …

A comparison of one firm's figures with those of another firm, or with the industry as a whole, for the same period. Common size statements make this possible by removing the …

Analysis that compares the figure of an item across two or more periods, that is, across time. Comparative statements are a form …

Analysis in which each item is expressed as a percentage of a common base within the same period. Common size statements and accounting ratios are …