Professional Documents
Culture Documents
Types of Financial Statements
Types of Financial Statements
Income Statement
Balance Sheet
Statement of Retained earning or Profit and
Loss Appropriation account
Funds Flow Statement
Cash Flow statement
Techniques of Financial
Statement Analysis
Comparative Statements ( of two years are
present together)
Common Size Statements (% of the total
figures)
Trend Analysis ( Changes from various
periods.)
Funds and Cash Flow Analysis
Ratio Analysis
Ratio Analysis
It concentrates on the interrelationship among
the figures appearing in the Income Statement,
Balance Sheet, Statement of retained earnings,
Statement of Changes in the financial position.
It helps the management to analyze the past
performance of the firm and and to make further
projections.
Categories of Ratios
Liquidity ratios ( ability of the firm to meet its
short term liabilities)
Solvency ratios (ability of the firm to meet its long
term liabilities
Activity ratios ( to measure the effectiveness and
efficiency with which the firm is managing its
current assets.)
Profitability ratios ( to measure the profitability
condition of the company)
Market test Ratios it relates the firms stock price
to its earnings and book value per share.
Liquidity ratios
Current ratio=
Current assets
( Ideal is 2:1)
Current Liabilities
Quick Ratio = Liquid asset
( Ideal is 1:1)
Current Liabilities
Super Quick Ratio = Cash + marketable securities
( Ideal is 0.5:1)
Current Liabilities
Solvency ratios
Debt Equity ratios = External Equities
Internal Equities
Proprietary Ratio = Shareholders funds
Total assets
Fixed assets to net worth ratio= Fixed assets
Total Long term funds
Capital Gearing ratio = Fixed Interest Bearing Funds
Equity Shareholders Fund
Ingredients
Current assets- Cash in Hand and Bank, Bills Receivable, Marketable
securities, Prepaid Expenses,Closing Stock
Current Liabilities: Sundry Creditors, Bills Payable, bank overdraft,
Outstanding Expenses, Short term loans, income received in advance,
accrued expenses.
Liquid assets: Current assets- (Closing Stock+ Prepaid expenses)
Absolute Liquid assets: Cash at hand and Bank, marketable securities.
Average: (Opening + Closing)/2
Inventory only means stock of finished goods in Inventory turnover
Ratio.
External Equity: short and long term creditors
Internal Equities or net worth : Equity and preference Share capital,
Reserves minus fictitious assets.
Total assets: Assets- Fictitious assets