Page 701 - Accounting Principles (A Business Perspective)

17. Analysis and interpretation of financial statements

property, plant, and equipment, while an electric utility company would have no merchandise inventory (except for
repair parts) and a large investment in property, plant, and equipment.
Even within an industry, variations may exist. Acceptable current ratios, gross margin percentages, debt to

equity ratios, and other relationships vary widely depending on unique conditions within an industry. Therefore, it
is important to know the industry to make comparisons that have real meaning.

Exhibit 136: Graphic depiction of financial statement analysis utilizing financial rations

The bankruptcies of companies like General Motors and Lehman Brothers, with the resulting significant losses
to employees, stockholders, and other members of the general public, have caused important changes in corporate
governance, standards of accounting, and auditing procedures and standards. These changes have come about as a
result of self-regulation, oversight by the Public Company Accounting Oversight Board, regulation by the Securities
and Exchange Commission, regulation by the stock exchanges, and legislation passed by Congress, and by some

combination of these actions. Further changes are likely.
Financial statements are likely to become more "transparent". This means they will reveal more clearly the
results of operations and the financial condition of the company. There is likely to be an increased focus on the
balance sheet and on the quality and measurement of assets and the extent and nature of liabilities as well as on a

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