INSTRUCTIONS FOR UNIT #18 BALANCE SHEET HORIZONTAL ANALYSIS TUTORIAL - INITIAL TUTORIAL - COMPLETED

INSTRUCTIONS FOR UNIT #18

~ In Unit #17 you used % to analyze trends across two years of the income statement. In this unit, you'll take the same approach to the balance sheet, using the classified or report form in financial reporting. Again, the Horizontal approach emphasizes trends across time. When applied to the balance sheet, you're looking for patterns in changes to cash, or receivables, or payables, etc. For example, a buildup in inventory can be good, but a buildup in receivables is not, especially if receivables are increasing at a faster rate than sales! Likewise, if payables are increasing at a faster rate than sales or cash, they may indicate a potential solvency or liquidity problem, i.e. having enough cash on time to pay your bills. Accordingly, changes across balance sheets can be compared to changes across income statements, looking for key indicators. ~ In Unit #18 we'll examine the balance sheet across two years, current and previous. You will enter the data and the spreadsheet will calculate the amount and % change from the previous year. Some cells have been programmed to make calculations, e.g. cash + receivables + inventory + supplies + prepaid insurance = current assets. Some information has been copied to the bottom section, called Key data. It would be quoted to reporting sources such as the Wall Street Journal, Bloomberg.com, Reuters.com, etc. as critical measures of financial position. If you are not sure of data entries or cell programming, look at the formula bar for the respective cell. ~ The tutorial titled Initial has all the categories of a balance sheet ( on the left ). You will enter two sets of data, the current year and the previous year. As you do this, the increase or decrease from the previous year will be calculated to include amount and %. Some data has already been entered. ~ Accordingly, enter the following data in the appropriate cells: Current Previous Accounts receivable 60 80 Inventory 50 60 Supplies 25 20 Prepaid insurance 15 10 Land 50 50 Buildings and equipment 175 150 Accumulated depreciation 25 20 Wages and salaries payable 30 40 Accounts payable 40 80 Notes payable (current portion) 5 2 Notes payable (long term) 45 48 Preferred stock 50 50 Paid in capital on preferred 25 25 Common stock 75 50 Paid in capital on common 50 25

INSTRUCTIONS FOR UNIT #18

~ Data continued: Treasury stock Retained earnings Current 20 100 Previous 20 90

~ The tutorial Completed has the correct entries, to include data, changes, and % changes.