Accountancy 200 Fundamentals of Accounting

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Accountancy 200Fundamentals of Accounting

• ANALYZING FINANCIAL STATEMENTSPart II

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Financial Statement Analysis
Analysis of relationships within financial
statements over time is known as time-series or
trend analysis. Such analysis can
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Trend Analysis
McDonalds Corporation
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Trend Analysis
McDonalds Corporation
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Cross-Sectional Trend Analysis
The Dow Jones Industrial Average (DJIA) is an
index used to measure and report value changes in
a group of industrial stocks on the New York
Stock Exchange. The DJIA weights the stock prices
of 30 U.S. industrial companies including
McDonald's Corporation. McDonald's represents
1.949 of the index weight.
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Cross-Sectional Trend Analysis
McDonalds Corporation
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Variability in Financial Ratios
Financial statement variability relates to the
companys business risk of the company. One
measure of financial ratio variability is an
estimate of a coefficient of variation Range /
Mean (Maximum value - Minimum value) / Mean value
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Variability in Financial Ratios
Earlier, we examined the trend of McDonalds
revenues, earnings and market prices per common
share. The variability of these ratios are
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Variability in Financial Ratios
Alternative variability measures are the variance
and standard deviation of the time series. The
variability of the three McDonalds financial
ratios over the 1988-1998 time is
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Association Between Financial Ratios
Correlation is a statistical method for measuring
the extent of association between
variables. Their tendency to move
together. Correlation ranges between 1 and 1,
where 1 indicates perfect inverse relation and
1 indicates perfect positive relation. Using
Excel CORREL function on the McDonalds variables