FINANCIAL STATEMENT ANALYSIS

FINANCIAL STATEMENT ANALYSIS

FSA is the study of relationship among the various financial factors in a business by a single set of statements and a study of the trend as shown ina a series of statements. It refers to the treatment of the information contined in the financial statements in a way so as to afford a full diagnosis of the profitability and financial position of the firm concernd.

WHY ??

The analysis & interepretation are an attempt to determine the significance and meaning of the financial statements data ,so that a forecast may be made of the prospects of the future earnings,ability to pay interest & debt maturities and probability of a sound dividend policy.

The most important objective is to know the strength & weakness of a business

OBJECTIVES OF FSA
1. The present and future earning capacity or profitability of the concern 2.The operational efficiency of the concern for the benefit of the departments. 3. The short term and long term solvency of the concern for the benefit of the debenture holders and trade creditors 4. The comparative study of one firm with regard to another 5. The possibility of developments in the future by making forecasts and preparing budgets 6. The financial stability of a business concern 7.The long term liquidity of its funds

TYPES

OF

FSA

According to nature

According to objective

According to modus operandi

1.External Analysis 2.Internal Analysis

1.Long term Analysis 2.short term Analysis

1. Horizontal/Dynamic analysis 2. Vertical/Static Analysis

IMPORTANCE OF FIANCIAL STATEMENT ANALYSIS

1.Owners 2.Creditors 3.investors 4.Employees 5.governemtn 6.Research Scholars 7. Consumers 8. Managers

LIMITATIONS OF FSA
1.Interim and not final reports 2. lack of precision & definiteness 3.lack of objective judgement 4.Records only monetary facts 5.Historical in nature 6.Artificial view 7.Scope of manipulations 8.Inadequate information

TECHNIQUES OF ANALYSIS & INTERPRETATION

1.Comparative Analysis 2.Common size statement 3.Trend percentage Analysis 4.Funds Flow statement 5. Cash Flow Analysis 6. Ratio Analysis