ACCOUNTING FOR MANGERS

TOPIC: TYPES OF FINANCIAL ANALYSIS

SUBMITTED BY
ATHIRA R
S1 MBA
FINANCIAL ANALYSIS

 Financial analysis is the process of identifying the financial strengths and weaknesses of

the firm by property establishing relationships between the items of the balance sheet
and the profit and loss account.

 The term ‘financial analysis’ is also know as analysis and interpretation of financial

statements.
TYPES OF FINANCIAL ANALYSIS
 On the basis of materials used:

External Analysis
Internal Analysis
 On the basis of modus operandi:

Horizontal Analysis
Vertical Analysis
 On the basis of objective of analysis:

Long-term Analysis
Short-term Analysis
1. External Analysis

External analysis of financial statement is made of those who do not have access to
the detailed accounting records of the company, i.e., banks, creditors and general public.

2. Internal Analysis

Internal Analysis is a type of analysis made by the accounting department to assess

the profitability of different activities of the organisation.
3. Horizontal Analysis

When the financial statements for a number of years are reviewed and analysed, the
analysis is called “horizontal analysis”. The preparation of comparative statements is an
example of horizontal analysis.

4. Vertical Analysis

Vertical Analysis is also known as “Static Analysis”. When ratios are calculated from the
Balance Sheet of one year is called vertical analysis.
5. Long-term Analysis

Long run analysis is done to ascertain the stability and earning potentiality of the
concern by analysing the fixed assets, long term debt structure and the ownership interest.

6. Short-term analysis

Also known as working capital analysis. In short term analysis, the current assets and
current liabilities are analysed and cash position of the concern is determined.