Techniques of Financial Statement Analysis.pptx

An explanation of the various techniques of Financial Statement Analysis

1. Technics of Financial Statement Analysis Presented By Dr. Gopal Krishna Rathore Associate Professor School of Management, OP Jindal University, Raigarh (C.G.)

2. Financial Statement Analysis Financial analysis is the process of examining a company’s performance in the context of its industry and economic environment in order to arrive at a decision or recommendation.

3. Technics of Financial Statement Analysis Comparative Statements Analysis Common Size Statements Analysis Trend Analysis Ratio Analysis Cash Flow Analysis

4. Comparative Statements Analysis Comparative statement shows changes in all items of financial statements in absolute and percentage terms over a period of time for a firm or between two firms. The financial data will be comparative only when same accounting principles are used in preparing these statements. Comparative figures indicate the trend and direction of financial position and operating results. This analysis is also known as ‘horizontal analysis’

5. Common Size Statements Analysis These are the statements which indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item.

6. Trend Analysis Trend analysis is an analysis of the trend of the company by comparing its financial statements to analyze the trend of market or analysis of the future on the basis of results of past performance and it’s an attempt to make the best decisions on the basis of results of the analysis done. It is a technique of studying the operational results and financial position over a series of years.

7. Ratio Analysis It describes the significant relationship which exists between various items of a balance sheet and a statement of profit and loss of a firm.

8. Cash Flow Analysis It refers to the analysis of actual movement of cash into and out of an organisation .

9. Limitations of Financial Analysis Financial analysis does not consider price level changes. Financial analysis may be misleading without the knowledge of the changes in accounting procedure followed by a firm. Financial analysis is just a study of reports of the company. Monetary information alone is considered in financial analysis while non-monetary aspects are ignored. The financial statements are prepared on the basis of accounting concept, as such, it does not reflect the current position

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