Q 2. Differentiate between horizontal and vertical analysis. Using sales as a component for each type, give an example that explains the difference. Q3. Q4. Q5. Q6 What is trend analysis? Can it be used for ratios? For absolute figures? Suppose you are comparing two firms within an industry. One is large and the other is small. Will relative or absolute numbers be of more value in each case? What kinds of statistics can help evaluate relative size? Are managers the only users of financial reports? Discuss. Briefly describe how each of these groups might use financial reports: managers, investors, and creditors. In determining the short-term liquidity of a firm, the current ratio is usually considered to be a better guide than the acid-test ratio, and the acid-test ratio is considered to be a better guide than the cash ratio. Discuss when the acid-test ratio would be preferred over the current ratio and when the cash ratio would be preferred over the acid-test ratio. When a firm faces an inflationary condition and the LIFO inventory method is based on a periodic basis, purchases late in the year can have a substantial influence on profits. Comment Q7. Q8