Description
Financial statements provide a summary of the accounts of a business enterprise. Balance sheet reflecting the assets, liabilities, and capital as on a certain date and the income statement showing the results of operations during a certain period.
Financial Statement
Analysis
Financial Statements
Financial statements provide a summary of the
accounts of a business enterprise. Balance sheet
reflecting the assets, liabilities, and capital as on a
certain date and the income statement showing the
results of operations during a certain period. Various
Financial Statements are
? Income statement (or Profit and Loss Account).
Income statement is prepared to determine the
operation position of the concern. It is a statement of
revenues earned and the expenses incurred for
earning that revenue. The income statement is
prepared for a particular period, generally a year.
? Balance Sheet:
The balance sheet shows all the assets owned by the
concern and all the liabilities and claims it owes to
owners and outsiders. The balance sheet is prepared
on a particular date.
? Cash flow statement:
A statement of changes in the financial positions of
an organization on cash basis is called cash flow
statement. It summaries the causes of changes in
cash position of a business enterprise between dates
of two balance sheets.
Financial Statement
Analysis
Financial Statement contains a wealth of information. If
properly analyzed and interpreted, it can provide
valuable insights into organization performance and
position.
Analytical methods and devices used in analyzing
financial statements are as follow:
? Financial ratio analysis
? Common size analysis
? Comparative Statement
? Trend analysis
? Cash flow analysis
? Funds flow statement
Financial Ratio Analysis
? A ratio is an arithmetical relationship between
two figures.
? Financial ratio analysis is a study of ratios
between various items or groups of items in
financial statements.
? Ratios can be classified according to
statements, mainly they are profit and loss
ratios, balance sheet ratios or position
statement ratios, mixed ratio or inter
statement ratios.
Common Size Financial
Statements Analysis
? The common size financial statements are those in
which figures reported are converted into percentage
to some common base.
? The figures are shown as percentage of total assets,
total liabilities, and total sales.
? In common size analysis the items in the balance
sheet are stated as percentages of total assets or
liabilities and the items in the income statement are
expressed as percentage of total sales.
? Such percentage statements are called common size
statements.
Trend Analysis
? The financial statement may be analyzed by computing
trends of series of information.
? This method determines the direction upwards or
downwards and involves the computation of percentage
relationship that each statement items bears to the same
item in the base year.
? The information for a number of years is taken up and
one year generally the first year is taken as a base year.
The figures of the base year are taken as 100 and trend
ratios for other years are calculated on this base year.
Comparative Statement
? Comparative income Statement:
It shows the operating results for a
number of accounting periods and
changes in the data in absolute money
terms as well as in relative percentage.
? Comparative balance sheet:
It shows the changes in assets
&liabilities between different periods.
Objectives of Financial
Statements Analysis
? Comparative study can be possible
? Analysis of historical results
? Future forecasting or preparation
budget
? Cost benefit analysis
? Managerial decision making
? Problem solving
? Liquidity position
doc_362437659.ppt
Financial statements provide a summary of the accounts of a business enterprise. Balance sheet reflecting the assets, liabilities, and capital as on a certain date and the income statement showing the results of operations during a certain period.
Financial Statement
Analysis
Financial Statements
Financial statements provide a summary of the
accounts of a business enterprise. Balance sheet
reflecting the assets, liabilities, and capital as on a
certain date and the income statement showing the
results of operations during a certain period. Various
Financial Statements are
? Income statement (or Profit and Loss Account).
Income statement is prepared to determine the
operation position of the concern. It is a statement of
revenues earned and the expenses incurred for
earning that revenue. The income statement is
prepared for a particular period, generally a year.
? Balance Sheet:
The balance sheet shows all the assets owned by the
concern and all the liabilities and claims it owes to
owners and outsiders. The balance sheet is prepared
on a particular date.
? Cash flow statement:
A statement of changes in the financial positions of
an organization on cash basis is called cash flow
statement. It summaries the causes of changes in
cash position of a business enterprise between dates
of two balance sheets.
Financial Statement
Analysis
Financial Statement contains a wealth of information. If
properly analyzed and interpreted, it can provide
valuable insights into organization performance and
position.
Analytical methods and devices used in analyzing
financial statements are as follow:
? Financial ratio analysis
? Common size analysis
? Comparative Statement
? Trend analysis
? Cash flow analysis
? Funds flow statement
Financial Ratio Analysis
? A ratio is an arithmetical relationship between
two figures.
? Financial ratio analysis is a study of ratios
between various items or groups of items in
financial statements.
? Ratios can be classified according to
statements, mainly they are profit and loss
ratios, balance sheet ratios or position
statement ratios, mixed ratio or inter
statement ratios.
Common Size Financial
Statements Analysis
? The common size financial statements are those in
which figures reported are converted into percentage
to some common base.
? The figures are shown as percentage of total assets,
total liabilities, and total sales.
? In common size analysis the items in the balance
sheet are stated as percentages of total assets or
liabilities and the items in the income statement are
expressed as percentage of total sales.
? Such percentage statements are called common size
statements.
Trend Analysis
? The financial statement may be analyzed by computing
trends of series of information.
? This method determines the direction upwards or
downwards and involves the computation of percentage
relationship that each statement items bears to the same
item in the base year.
? The information for a number of years is taken up and
one year generally the first year is taken as a base year.
The figures of the base year are taken as 100 and trend
ratios for other years are calculated on this base year.
Comparative Statement
? Comparative income Statement:
It shows the operating results for a
number of accounting periods and
changes in the data in absolute money
terms as well as in relative percentage.
? Comparative balance sheet:
It shows the changes in assets
&liabilities between different periods.
Objectives of Financial
Statements Analysis
? Comparative study can be possible
? Analysis of historical results
? Future forecasting or preparation
budget
? Cost benefit analysis
? Managerial decision making
? Problem solving
? Liquidity position
doc_362437659.ppt