abhishreshthaa
Abhijeet S
TYPES OF’ FINANCIAL ANALYSIS
Taking Into account the needs of various parties the financial analysis may be of the following types:
1. Intra firm Analysis:
It is a type of analysis which involves analysis of performance of the organization over number of years. Such analysis may involve trend analysis of various financial factors. It helps the management to take various policy decisions. It is also referred as Times series Analysis or Trend Analysis
2. Inter firm Analysis:
It is a comparison of two or more organizations in terms of various financial variables. It helps the management to decide strengths and weaknesses of the organizations. It may involve cross section Analysis which implies analysis of statements of two organizations. Some times analysis of two or more organizations’ performance may be analysed over a number of years. Such an analysis is called Cross Sectional Trend Analysis.
3. Standard Analysis:
In this case only one set of financial statements of an organisation is analysed on the basis of standard set for the fIrm or industry. For example profitability of a firm may be compared with the standard set at industry level.
4. Horizontal Analysis:
It is the comparison of figures reported in financial statements of two or more consecutive accounting periods. i.e. Analysis across ears. Comparative financial statement is a tool of Horizontal Analysis.
5. Vertical Analysis:
Comparing figures in the financial statements of a single period known as Vertical Analysis. i.e. all the figures in a statement are converted to a common unit by expressing them as percentage of a key figure in the statement, such as total sales in the Income statement or total assets In a Balance Sheet. Such statements are called common size statements.
Taking Into account the needs of various parties the financial analysis may be of the following types:
1. Intra firm Analysis:
It is a type of analysis which involves analysis of performance of the organization over number of years. Such analysis may involve trend analysis of various financial factors. It helps the management to take various policy decisions. It is also referred as Times series Analysis or Trend Analysis
2. Inter firm Analysis:
It is a comparison of two or more organizations in terms of various financial variables. It helps the management to decide strengths and weaknesses of the organizations. It may involve cross section Analysis which implies analysis of statements of two organizations. Some times analysis of two or more organizations’ performance may be analysed over a number of years. Such an analysis is called Cross Sectional Trend Analysis.
3. Standard Analysis:
In this case only one set of financial statements of an organisation is analysed on the basis of standard set for the fIrm or industry. For example profitability of a firm may be compared with the standard set at industry level.
4. Horizontal Analysis:
It is the comparison of figures reported in financial statements of two or more consecutive accounting periods. i.e. Analysis across ears. Comparative financial statement is a tool of Horizontal Analysis.
5. Vertical Analysis:
Comparing figures in the financial statements of a single period known as Vertical Analysis. i.e. all the figures in a statement are converted to a common unit by expressing them as percentage of a key figure in the statement, such as total sales in the Income statement or total assets In a Balance Sheet. Such statements are called common size statements.