Financial Statement Analysis
FINANCIAL STATEMENT ANALYSIS (FSA)
Description also available in video format (attached
below), for better experience use your desktop.Introduction
·
For the survival of any business there are
only two key factors
o
Profitability (important to generate revenue)
o
Solvency (helps to identify that the business
is meeting financial obligations or not)
·
FSA is a collective set
of tools & techniques that helps a business to analyze its data in terms of
financial aspects.
·
It helps the business in decision making for
its ultimate survival in the market
Purpose, Examples & Sources of FSA
· Purpose
o
Performing evaluation of an organization in
terms of
§ Financial performance
§ Financial position
§ Future performance prediction
o
Performing comparison over a period of time
in terms of
§ Within the company
§ Between the companies
§ Against a particular industry
o
To get information about the organization n
terms of
§ Past performance
§ Present condition
§ Future performance
o
To assess the organization in terms of
§ Earnings
§ Power
§ Persistence
§ Quality
§ Growth
§ & Solvency
· Examples of financial
statements
o
Income statement
o
Balance sheet
o
Retained earnings statement
o
Statement on changes of financial position
· Sources
o
Company reports
o
Financial statements
o
Auditors report
o
Business periodicals
o
Stock exchanges
Tools
of FSA
· Financial Ratio
Analysis
o
Profitability Ratios
o
Short Term Solvency Ratios
o
Activity Ratios
o
Capitalization Ratios
o
Market Test Ratios
· Comparative FSA
o
Horizontal Analysis
o
Vertical Analysis
Limitations
of FSA
·
Strong FSA does not mean that an organization
has a strong financial future
·
FSA sounds good but other factors can also be
a reason to cause the sudden collapse of an organization
·
FSA is only a mean
·
It ignores price level changes
·
It is also an influence of personal judgement
·
It discloses only monetary facts
Video
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