The Definitive Guide to Business Finance: What smart managers do with the numbers, Second Edition

New ways of looking at the figures

So far, we have discussed the structure and content of financial statements. Now it is time to really analyse them. There are four key ways to look at the numbers:

• As presented – that is, you examine the underlying raw data.

• Cross-sectional – look at relationships between various numbers (e.g. current assets relative to total assets) – otherwise known as vertical analysis.

• Trends over time – otherwise known as horizontal analysis.

• Comparisons – with the industry average or key competitors.

Also, there are four ways of reviewing these. You can analyse:

• Absolute values – i.e. the raw data and increases or decreases in dollars.

• Percentages.

• Index numbers.

• Ratios – such as current assets as a percentage of total assets. ...