INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS, NEED FOR THW FINANCIAL ANALYSIS, TOOLS FOR FINANCIAL ANALYSIS, INTRESTED PARTIES LIMITATIONS

1. FINANCIAL STATEMENT
ANALYSIS

2. Contents
• Introduction
• Need for Financial Analysis
• Tools for Financial Analysis
• Interested Parties
• Limitations

3. Introduction
• Financial statement analysis (or financial analysis) is
the process of reviewing and analyzing a company's
financial statements to make better economic decisions.
• These statements include income statement, balance
sheet, cash flow statement , statement of changes in
equity.
• FSA asses the financial health & performance of the
company.
• FSA consist of comparisons for the company over the
period of time and comparisons of different companies
either in the same industry or in different industries.

4. • It helps to know the profitability and financial
soundness of the company
• It helps to forecast future performance

5. Need for Financial Analysis
To Evaluate
Financial Performance
Financial Position
Prediction of Future Performance
Operating efficiency of firm

6. To diagnose following parameters
Profitability
Solvency
Liquidity
stability

7. Tools for Financial Analysis
• Comparative Statement
• Common size Statement
• Trend Analysis
• Ratio Analysis
• Funds flow Statement
• Cash flow Statement

8. Comparative Statement
• It is also called as Horizontal Analysis.
• It shows the financial position of a company at
different time periods.
Common Size Statement
• The figures of financial statements are converted
to percentages. The balance sheet items are
expressed as the ratio of each asset to total
assets and the ratio of each liability to total
liabilities.

9. Trend Analysis
It involves comparative study of financial
statements over several years. trend
percentages are calculated in relation to a base
year.
Ratio Analysis
The most popular way to analyze the financial
statements is computing ratios. It is an important
and widely used tool of analysis of financial
statements. It is study of ratios b/w various items
or groups in FS.

11. Interested Parties
• Management
• Employees
• Creditors
• Lenders & Investors
• Shareholders
• Labour Unions
• Govt. Agencies

12. Limitations
• The accuracy of financial information largely depends on
how accurately financial statements are prepared.
• Companies have a choice of accounting methods (LIFO
vs. FIFO and depreciation methods).
• It check just monetary aspect of company's
performance and position but it ignores non-monetary
aspect of company.
• If one company's accounting period completes at 31st
Dec. and other company's accounting period completes
at 31st march, we will unable to compare both
company's financial statement.