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A Financial Statement

A Financial Statement

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Published by: Annonymous963258 on May 26, 2011
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Subject: Financial Management 
Financial Statement Analysis of Carborundum Universal Ltd.
 
4/15/2010Submitted to;Dr. P. R. WilsonSMS, CUSATSubmitted by,Yuben JosephRoll No: 30MBA  IBSMS, CUSAT
 
 A financial statement (or financial report) is a formal record of the financial activities of abusiness, person, or other entity. For a business enterprise, all the relevant financialinformation, presented in a structured manner and in a form easy to understand, arecalled the financial statements. They typically include four basic financial statements:
y
 
Balance sheet
y
 
Income statement
y
 
Statement of retained earnings
y
 
Statement of cash flows1. Balance sheet: also referred to as statement of financial position or condition, reportson a company's assets, liabilities, and Ownership equity at a given point in time.2. Income statement: also referred to as Profit and Loss statement (or a "P&L"), reportson a company's income, expenses, and profits over a period of time. Profit & Loss accountprovide information on the operation of the enterprise. These include sale and the variousexpenses incurred during the processing state.3. Statement of retained earnings: explains the changes in a company's retained earningsover the reporting period.4. Statement of cash flows: reports on a company's cash flow activities, particularly itsoperating, investing and financing activities.For large corporations, these statements are often complex and may include an extensiveset of notes to the financial statements and management discussion and analysis. Thenotes typically describe each item on the balance sheet, income statement and cash flowstatement in further detail. Notes to financial statements are considered an integral partof the financial statements.Financial analysis refers to an assessment of the viability, stability and profitability of abusiness, sub-business or project. It is performed by professionals who prepare reportsusing ratios that make use of information taken from financial statements and otherreports. These figures just give the position of asset or the profit or loss of that companyin a particular year. It does not specify whether the company is growing or not, how muchprofitable the company is now as compared to the previous years etc. To know about thecomparative analysis of these financial statements are to be done. These reports areusually presented to top management as one of their bases in making business decisions.Based on these reports, management may: Continue or discontinue its main operation or part of its business; Make or purchase certain materials in the manufacture of its product; Acquire or rent/lease certain machineries and equipment in the production of its goods; Issue stocks or negotiate for a bank loan to increase its working capital; Make decisions regarding investing or lending capital; Other decisions that allow management to make an informed selection on variousalternatives in the conduct of its business.There are various methods to understand and interpret the financial statements. Theyare:I.
 
Ratio AnalysisII.
 
Break Even AnalysisIII.
 
Calculation of LeverageIV.
 
EBIT  EPS Analysis
 
RatioA financial ratio (or accounting ratio) is a relative magnitude of two selected numericalvalues taken from an enterprise's financial statements. Often used in accounting, thereare many standard ratios used to try to evaluate the overall financial condition of acorporation or other organization. Financial ratios may be used by managers within a firm,by current and potential shareholders (owners) of a firm, and by a firm's creditors.Security analysts use financial ratios to compare the strengths and weaknesses in variouscompanies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.Financial ratios quantify many aspects of a business and are an integral part of financialstatement analysis. Financial ratios are categorized according to the financial aspect of thebusiness which the ratio measures. Liquidity ratios measure the availability of cash to paydebt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets.Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measurethe firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and alsothe cost of issuing stock.Financial ratios allow for comparisons Between companies Between industries Between different time periods for one company Between a single company and its industry averageRatios generally hold no meaning unless they are benchmarked against something else,like past performance or another company. Thus, the ratios of firms in differentindustries, which face different risks, capital requirements, and competition, are usuallyhard to compare.Various types of Ratios are;Liquidity RatiosThey measure the liquidity of the form and its ability to meet the short team obligations;also Liquidity ratios measure the availability of cash to pay debt.Current Ratio:
—””‡–••‡•–•  ‘ƒ•ƒ††˜ƒ…‡•—””‡–‹ƒ„‹Ž‹–‡• ”‘˜‹•‹‘•
 The ideal value is 2:1Quick Ratio
—””‡–••‡•–• ˜‡–‘”‹‡•ƒ†”‡’ƒ›‡–•—””‡–‹ƒ„‹Ž‹–‡• ƒ˜‡”†”ƒˆ– 
 Ideal Ratio is 1:1Solvency RatiosLong term financial stability if the firm is considered to be dependent on its ability to meet allits liabilities.

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