Week 3 Questions

Question 1 . Difference between Horizontal and Vertical Analysis

There are 3 techniques which can be used to analyze the data found in financial statements such as an income statement , balance sheet etc . 2 of these techniques are called horizontal analysis and vertical analysis . Horizontal analysis , also known as trend analysis , essentially involves evaluating the increase or decrease that has taken place expressed as either a percentage or an actual amount . A base year is chosen and accordingly the changes in the values are recorded . Vertical analysis , on the other hand , is also

known as common size analysis and involves a technique in which each item in a financial statement is expressed as percentage of a base amount . For example , we can state that current assets are 46 of `compare companies of different sizes

Question 2 . Explain sustainable income . What relationship does this concept have to the treatment of irregular items on the income statement

Sustainable income is basically defined as the ability of a company to sustain its profits from its operations . Sustainable income is essentially derived from net income by subtracting irregular revenues expenses , losses , gains etc . Therefore sustainable income is such that it excludes irregularities . Irregular items on an income statement come under two headings : Discontinued operations and Extraordinary Items Discontinues operations basically include a major part of a specific business which is entirely disposed off due...