Tuesday, 12 November 2019

Unit 3: Analysis of Financial Statements


                                  Unit 3: Analysis of Financial Statements   

Financial statement analysis can be explained as a method used by interested parties such as investors, creditors, and management to evaluate the past, current, and projected conditions and performance of the firm.

Under the financial statement analysis, the information available are grouped together in order to cull out the meaningful relationship which is already available among them; for interpretation and analysis.

Three primary types of financial statement analysis are commonly known as horizontal analysis, vertical analysis, and ratio analysis.

To reveal qualitative information about the firm in terms of solvency, liquidity, profitability, etc.

, are extracted from the analysis of financial statements.

Comparative (income) financial statement analysis is being carried out in between the income statements of the various accounting durations of the firm, with other firms in the industry and with the industrial average.

After having been procured the financial data pertaining to various time periods are ready for comparison; to determine or identify the level of increase or decrease taken place in the operating financial performance of the firms.

Trend analysis involves calculating each year’s financial statement balances as percentages of the first year, also known as the base year.

When expressed as percentages, the base year figures are always 100 percent, and percentage changes from the base year can be determined.

Assets: Assets are economic resources owned by business or company.

Balance Sheet: A balance sheet or statement of financial position is a summary of a person’s or organization’s balances.

Comparative Statements: Comparative statements are the financial statements which follow a consistent format but which cover different periods of time.

Comparative statements are very useful for spotting trends.

Financial Statement: A written report which quantitatively describes the financial health of a company.

Trend analysis: In trend analysis, financial ratios are compared over time, typically years.

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