BUS105: Managerial Accounting

11a: Perform trend analysis to evaluate financial statement information.

• Define trend analysis with income statement and balance sheet accounts.

Review Trend Analysis of Financial Statements from Managerial Accounting.

11b: Perform common-size analysis to evaluate financial statement information.

• Define common-size analysis.
• How do managers use common-size analysis to analyze trends within a company?
• How do managers use common-size analysis to study competitors?

A common-size analysis of an income statement reports income statement accounts as a percentage of net sales. A common-size analysis of a balance sheet report balance sheet accounts as a percentage of total assets.

Review Common-Size Analysis of Financial Statements from Managerial Accounting.

11c: Use ratio analysis to measure profitability, short-term liquidity, long-term solvency, and market valuation.

Profitability ratios focus on the income statement.

• Define gross margin ratio.
• Define profit margin ratio.
• How do managers calculate return on assets?
• How do managers calculate return on common shareholders’ equity?
• How do managers calculate earnings per share?

Short-term liquidity ratios focus on the short-term liabilities.

• Define the current ratio.
• Define the quick ratio.
• Define the receivables turnover ratio.
• How do managers calculate the average collections period?
• How do managers calculate the inventory ratio.
• Describe how to calculate the average sales period.

Long-term solvency ratios focus on long-term liabilities.

• Define the debt-to-assets ratio.
• Define the debt-to-equity ratio.
• How do managers calculate times interest earned?

Market valuation measures focus on the value of the company.

• How do managers calculate market capitalization.
• How do managers calculate price-earnings ratio.

Review Ratio Analysis of Financial Information from Managerial Accounting.

11d: Develop and analyze non-financial performance measures using a balanced scorecard.

• Identify measures that evaluate financial performance.
• Identify measures that evaluate the efficiency of business processes.
• Identify measures that track employee learning and growth.
• Identify measures that track customer relationships.

Review Non-financial Performance Measures: The Balanced Scorecard from Managerial Accounting.

Review a sample balanced scorecard in Table 13.4 Balanced Scorecard Measures.

Unit 11 Vocabulary

• Average collection period
• Average sales period
• Balanced scorecard
• Base-year
• Common-size analysis
• Current ratio
• Debt-to-assets ratio
• Debt-to-equity ratio
• Earnings per share
• Financial leverage
• Gross margin ratio
• Inventory turnover ratio
• Long-term solvency
• Market capitalization
• Market valuation
• Percent change
• Price earnings ratio
• Profit margin ratio
• Profitability
• Quick ratio
• Receivables turnover ratio
• Return on assets
• Return on common shareholders’ equity
• Short-term liquidity
• Times interest earned
• Trend analysis
• Vertical analysis