Financial Reporting And Analysis

Financial Reporting And Analysis Explained.as to why is it important, Who is it important for and the different ways of analyzing a financial statement.

Greenwich University

1. Outline and Importance O f Financial R eporting And Analysis Submitted To : Rizwan ul Haq Submitted By : MIR ABDULLAH FAREEHA FAISAL ALI JAVED BURHAN UDDIN

2. Defining Financial Analysis Financial analysis is the process of evaluating financial and other information for decision-making.

3. Six-step Process Identify purpose of financial analysis Corporate overview Financial analysis techniques Detailed accounting analysis Comprehensive analysis Decision or recommendation

4. Types of Financial Statements Balance Sheet Income Statement Cashflow Statement Statement of Retained Earnings 4

5. Financial Statement Analysis What do internal users use it for? Planning , evaluating and controlling company operations What do external users use it for? Assessing past performance and current financial position and making predictions about the future profitability and solvency of the company as well as evaluating the effectiveness of management

6. External Uses of Statement Analysis Trade Creditors -- Focus on the liquidity of the firm. Bondholders -- Focus on the long-term cash flow of the firm. Shareholders -- Focus on the profitability and long-term health of the firm.

7. Internal Uses of Statement Analysis Plan -- Focus on assessing the current financial position and evaluating potential firm opportunities. Control -- Focus on return on investment for various assets and asset efficiency. Understand -- Focus on understanding how suppliers of funds analyze the firm.

8. Methods of Financial Statement Analysis Horizontal Analysis Vertical Analysis Common-Size Statements Trend Percentages Ratio Analysis

9. Horizontal Analysis Using comparative financial statements to calculate dollar or percentage changes in a financial statement item from one period to the next

10. Calculating Change as a Percentage Percentage Change Current Year-Base Year Base Year Figure 100 % = × Horizontal Analysis Example

11. $ 10,000 – $23,500 = $( 13,500 ) FAAB Pvt Ltd. BalanceSheet

12. ($ 10 ,000 ÷ $23,500) × 100% = 57.4% FAAB Pvt Ltd. Balance Sheet

13. FAAB Pvt Ltd. Balance Sheet

14. Vertical Analysis For a single financial statement, each item is expressed as a percentage of a significant total, e.g., all income statement items are expressed as a percentage of sales

15. Vertical Analysis Example

16. Vertical Analysis Example $ 99000 ÷ $546,000 = 18% rounded $30,000 ÷ $387,000 = 8% rounded

17. Common-Size Statements Financial statements that show only percentages and no absolute dollar amounts

18. Trend Percentages Show changes over time in given financial statement items (can help evaluate financial information of several years)

19. Trend Percentages Example Wheeler, Inc. provides you with the following operating data and asks that you prepare a trend analysis.

20. Trend Percentages Example Wheeler, Inc. provides you with the following operating data and asks that you prepare a trend analysis. $1,991 - $1,820 = $171

21. Trend Percentages Example Using 1995 as the base year, we develop the following percentage relationships. $1,991 - $1,820 = $171 $171 ÷ $1,820 = 9% rounded

22. Ratio Analysis Expression of logical relationships between items in a financial statement of a single period (e.g., percentage relationship between revenue and net income)

23. LIQUIDITY and EFFICIENCY SOLVENCY PROFITABILITY MARKET Ability to meet short-term obligations and to efficiently generate revenues Ability to generate future revenues and meet long-term obligations Ability to generate positive market expectations Ability to provide financial rewards sufficient to attract and retain financing Building Blocks of Analysis

24. How a Ratio is expressed? As Percentage - such as 25% or 50% . For example if net profit is Rs.25,000/- and the sales is Rs.1,00,000/- then the net profit can be said to be 25% of the sales. As Proportion - The above figures may be expressed in terms of the relationship between net profit to sales as 1 : 4. As Pure Number /Times - The same can also be expressed in an alternatively way such as the sale is 4 times of the net profit or profit is 1/4 th of the sales.

25. Classification of Ratios Balance Sheet Ratio P&L Ratio or Income/Revenue Statement Ratio Balance Sheet and Profit & Loss Ratio Financial Ratio Operating Ratio Composite Ratio Current Ratio Quick Asset Ratio Proprietary Ratio Debt Equity Ratio Gross Profit Ratio Operating Ratio Expense Ratio Net profit Ratio Stock Turnover Ratio Fixed Asset Turnover Ratio, Return on Total Resources Ratio, Return on Own Funds Ratio, Earning per Share Ratio, Debtors’ Turnover Ratio,

26. Thank You