Financial Statement Analysis

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Redy Herinanto Albertus
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 Financial Statements
 A financial statement is a collection of data
organized as per logical & consistent accounting
procedure.
 The end product of business transactions are
financial statement .
 A financial statements are the basis of decision
making by management.
 Its purpose is to convey an understanding of
some financial aspects of business firm.
 Financial statement generally refers to the three
statements.
 Balance sheet, cash flow, and profit & loss A/c.
Financial Statement analysis

. Financial statement analysis is the process

of identification of the financial strength
and weakness of firm by properly
establishing relationship between the
items of balance sheet and profit & loss
A/c.
MEANING OF FINANCIAL STATEMENT
ANALYSIS
• Systematic process of critical examination of
the financial information contained in the
financial statements to understand and make
decisions regarding the operations of the
enterprise.
 Definition
Metcalf & Titcard – Financial statement analysis
is the process of evaluating relationship between
component part of a financial statements to
obtain better understanding of firm’s financial
position & performance.
Myers- Financial statement analysis is largely is
study of relationship among the various financial
factors in a business as disclosed by a single
setup, statements and study of trend of these
factors as shown in a series of statements.
 Purpose of financial statement:
Weathering the profitability.
Indicating the trend of achievement.
Accessing the growth potential.
Comparative position in relation to other
firm.
Access overall financial strength.
Access solvency of firm.
 Types of financial Analysis

On the basis of material used:

 External analysis – This analysis done by
outsiders who do not have access to the
internal a/c of business firm.
 Internal analysis- This analysis done by
persons who have access to internal A/c of
business firm.
On the basis of modus
operandi.
 Horizontal analysis- It refer to comparison of
financial data of a company horizontally over a
number of columns for several years.
 Vertical Analysis- Vertical analysis refer to the
study of relationship of various item in the
financial statement of one accounting period
be selecting a base figure from the same year
statement.
 PARTIES INTERESTED IN FINANCIAL
STATEMENT ANALYSIS

• Overall efficiency of the business.

MANAGEMENT • Decision making, controlling & self
evaluation.

• To look for a job with good and

EMPLOYEES fair incentives and better working
conditions.

• To assess the profitability and

SHAREHOLDERS
growth prospects of the business.
 • Determine whether the firm is
POTENTIAL
INVESTORS profitable enough and safe for
their investments.

• Assess the short term solvency of

CREDITORS the firm before providing credit
to the enterprise.

• Assess the short-term and long-

term solvency of the enterprise
BANKERS to ensure payment of loans and
debts and the repayment of
principal amount.