Financial Statement Analysis

Only available on StudyMode
  • Download(s) : 185
  • Published : December 27, 2010
Open Document
Text Preview
Financial Statement Analysis is an analysis which highlights important relationships in the financial statements. It focuses on evaluation of past operations as revealed by the analysis of basic statements. Financial Statement analysis embraces the methods used in assessing and interpreting the results of past performance and current financial position as they related to particular factors of interest in investment decisions. It is an important means of assessing past performance and in forecasting and planning future performance. Techniques of Financial Analysis:

Various techniques can be used in the analysis of financial data to emphasise the comparative and relative importance of data presented and to evaluate the position of the firm. These techniques of financial analysis are intended to show relationships and changes. Among the widely can be used of these techniques are the following: 1. Horizontal Analysis

2. Vertical Analysis
3. Trend Analysis
4. Ratio Analysis
Introduction to Finance:
FINANCE HAS MANY DICTIONARY MEANING SUCH AS MANAGEMENT OF MONEY, PROVIDE WITH MONEY, FIND CAPITAL ETC. FINANCE PLAYS AN IMPORTANT ROLE IN ANY ORGANIZATION. FINANCE HAS NOW DAYS BECOME A SPECIALIZED FUNCTION. IT REQUIRE s overall knowledge of the environment in which it is needed. Finance includes money, banking or credit of different types and classes. Finance is viewed differently by different people depending upon their interests. Management’s promoters, shareholders, lenders (creditors), customers and other have all participated in financing the organization or business enterprise. MEANING & DEFINATION:

Finance is the process of conversion of accumulated funds to productive use. Finance helps to direct the flow of economic activity and facilitates its smooth operation. Finances are the agent that produces the result. There are many definitions of Finance. Of all the best was of Howard and Upturn as “that administrative area of set of administrative functions in an organization which has to do with the management of the flow of cash so that the organization will have the means to carry out its objectives as satisfactorily as possible and at the same time meets its obligations as they become due. Finance is concerned with task of providing funds need by the enterprise on the forms that are most favorable towards the attainment of the organizational goals and objectives. The functions of finance are not merely furnishing funds to the organization. Finance has a broader meaning as it covers financial planning, forecasting of cash receipts and disbursements, rising of funds, use and allocation of funds and financial cash. The area of operation of finance management varies from one company to another, industry-to-industry etc.


Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the Balance sheet and the profit and Loss account. Financial analysis can be undertaken by the management of the firm, or by parties outside the firm, viz.., owners, creditors, investors and others. The nature of analysis will differ depending on the purpose of the analyst. Trade creditors are interested in firm’s ability to meet their claims over a very short period of time. Their analysis will, therefore. Confine to the evaluation of he firm’s liquidity position. Suppliers of long-term debt, on the other hand, are concerned with the firm’s long-term solvency and survival. They analyse the firm’s profitability over time, its ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of finds (capital structure relationships). Long-term creditors do analyse the historical financial statements, but they place more...
tracking img