FINANCIAL STATEMENTS

&TREND ANALYSIS

MEANING OF FINANCIAL STATEMENT

It is a written report of the financial condition of a
firm. Financial statements include the balance
sheet, income statement, statement of changes in
net worth and statement of cash flow. These are
prepared at the end of the year.

OBJECTIVES FOR PREPRATION

Various External And Internal Parties are
Interested in the Financial Statements.The
Nature of Interests is also different.From the
analysis of financial statements,each party
interested in business can find out whether his
interests are safe,whether business is
progressing,whether business can pay debts on
time and the main objective is what is earning
capacity of business etc.

NEEDS OF FINANCIAL STATEMENTS

FOR MANAGEMENT
FOR CREDITORS
FOR INVESTORS
FOR THE GOVERNMENT
FOR THE STOCK EXCHANGE
FOR THE BANKERS

MANAGEMENT
First and foremost need the information is to the
owners of the business, without the information in a
financial statement it would be very difficult to make
any important business decision. It explains the facts
relating to Creditability, Efficiency, Performance and
Financial control. As the Management is able to
decide the course of action taken in future.

CREDITORS
From the analysis of Financial Statements,
the creditors can ascertain the liquidity of
business.They also get imformation regarding
long-term financial soundness& Profitability.

INVESTORS
The Investors includes Both long-term and Short
term investors. They can analyse the financial
position and earning capacity of business. With
the help of financial analysis ,they can determine
the rate of dividend in the previous year and can
forecast future rate.

GOVERNMENT
The Financial Statements are used to assess
tax liability of business enterprises. These
Statements enables the government to find
out whether business is following various
rules or regulations or not.

STOCK EXCHANGE
The Stock Exchanges deal in purchases and sale of
securities of different companies. The Financial
Statements enable the stock brokers to judge the
financial position of different concerns. The fixation
of prices for securities, etc., is also based on these
statements.

BANKERS
The Banker is interested to see that the loan amount
is secure or not. The banker analyses the balance
sheet to determine financial strength of the
concern. It is through the financial statements that
banker can keep a watch on the business plans and
performances.

TREND ANALYSIS

INTRODUCTION:
Trend analysis is based on the idea that what has
happened in the past and gives traders an idea of
what will happen in the future. Trend analysis is
done when it is required to analyze the trend of data
shown in a series of financial statements of several
successive years. This method involves the calculation
of percentage relationship that each statement bears
to the same item in the base year.

Merits of Trend Analysis:

Trend percentages indicate the increase or decrease in
an accounting data.
As analyst is able to see the trend of figures, whether
upward or downward.
Effective than the absolute data.
The trend percentages facilitate an efficient
comparative study .
Measures financial performance of a business
enterprise over a period of time.

TREND PERCENTAGES OR RATIOS

Trend Analysis helps in future forecasts of various items on
the basis of data of previous year. Under this method one
year is taken as base year and its basis the ratios in the form
of percentages for others years are calculated. From the
study of these ratios, the changes in that item are examined
and trend is estimated. To find out trend ratios, each item of
base year is taken as 100 and percentage of an item of other
years can be calculated accordingly.

Procedure For Calculating Trends:1)One Year is taken as base year .Generally the First
and Last year is taken as base year.
2)The Figures of base year are taken as 100.
3)Trend Percentages are calculated in relation to base
year.
4)Each year Figure is divided by the base year figure.

For Example,
If the stock for 1995,1996 and 1997 is Rs.5000
Rs.7000, and Rs.10,000 respectively, the trend ratios
for 1996 and 1997 on the basis of 1995,can be
calculated as under:
1996=Rs. 7000/5000*100=140%
1997=Rs.10000/5000*100=200%
It means that during the past three years, there has
been constant increase in the stock which has
doubled in 1997 as compared to1995.

Precautions in Trend Analysis:

Base year should be a normal year so that it can be true
representative of other years.
The years which are included in Trend analysis should be
accounted for continuously on similar principles.
Before calculating trend ratios, the necessary adjustments
for price level should be made.
Trend Analysis should be calculated for such important
items which are logically related to each other.