Present a comprehensive financial statement analysis. Prepare the common size statements and all the ratios and amounts for the measures given below for the three most recent years for both Kansas Ci

Present a comprehensive financial statement analysis. Prepare the common size statements and all the ratios and amounts for the measures given below for the three most recent years for both Kansas City Life Insurance Company and Metropolitan Life Insurance Company and present in a clear tabular form. Then discuss each category given below.

•Common-Size financial Statements

•Ratios from chapter 15

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Chapter 15 Lecture Notes
Chapter 15 Lecture Notes
Chapter theme: This chapter focuses upon financial
statement analysis which is used to assess the financial
health of a company. It includes
examining trends in key
financial data
,
comparing financial data across
companies
, and
analyzing financial ratios
.
I.
Limitations of financial statement analysis
A.
Comparing financial data across companies
i.
Differences in accounting methods between
companies sometimes make it difficult to
compare their financial data
. For example:
1. If one company values its inventory using
the
LIFO method
and another uses the
average cost method
, then direct
comparisons of financial data such as
inventory valuations and cost of goods sold
may be
misleading
.
a. Even with this limitation in mind,
comparing financial ratios with other
companies or industry averages
can
provide useful insights
.
A.
Looking beyond ratios
ii.
Ratios should not be viewed as an end, but
rather as a
starting point
. They raise many
questions and point to opportunities for
further analysis, but they
rarely answer
questions by themselves
.
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2
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Chapter 15 Lecture Notes
1. In addition to ratios, other sources of data
should also be considered such as
industry
trends
,
technological changes
,
changes in
consumer tastes
,
changes in broad
economic factors
, and
changes within the
company itself
.
Helpful Hint: Reinforce the limitations of relying on
financial statements by identifying events that would
make financial statements doubtful as a predictor of the
future. Such an event would be a change in oil prices
that occurs after the financial statements are issued. An
increase in oil prices would be favorable for companies
with large stocks of petroleum and unfavorable for
companies that use large quantities of petroleum
feedstocks in their manufacturing processes.
Statements in comparative and common-size form
Learning Objective 1: Prepare and interpret financial
statements in comparative and common-size form.
B.
Key concept
iii.
An item on a balance sheet or income
statement has
little meaning by itself
. The
meaning of the number can be enhanced by
drawing comparisons
. This chapter
discusses three types of comparisons.
1.
Dollar and percentage changes on
statements
(
horizontal analysis
).
2.
Common-size statements
(
vertical
analysis
).
3.
Ratios
.
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3

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