“Performance Evaluation of Financial Statements by the Use of Ratio”

Only available on StudyMode
  • Download(s) : 617
  • Published : July 16, 2012
Open Document
Text Preview
“Performance Evaluation of Financial Statements by the Use of Ratio”

ACC-1221/09

In partial fulfillment of the requirements for the award of BBA (ACCOUNTING)

During the period 2008-2011

Chapter one

Introduction

1. Background

Financial statements are formal records of the financial activities of a business, person and other entities .Financial statements are all relevant financial information that are presented in a structured manner and in a form easy to understand to be used by parties both internal and external to the business enterprise .In addition, these statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, equity, income and expenses are directly related to an organization's financial position.

To ensure uniformity and comparability of the reports, general accounting principles are followed. These principles are commonly referred to as Generally Accepted Accounting Principles. These set of guidelines provide the basis in the preparation of financial statements.

These statements are prepared to meet external reporting obligations and also for decision making purposes. It plays a dominant role in setting the framework of managerial decisions. The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful for users.

Financial analysis is the process of understanding the risk and profitability of a firm through analysis of reported financial information annual /quarter reports in a systematic way. Analysis is the foundation of evaluating performance performed in the enterprise/business statements.

Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Financial analysis is the process of understanding the risk and profitability of a firm through analysis of reported financial information annual /quarter reports in a systematic way .And It’s is the foundation of evaluating performance performed in the enterprise/business statements.

As to the selection of a range of performance measures which are appropriate to a particular company, this selection ought to be made in the light of the company's strategic intentions which will have been formed to suit the competitive environment in which it operates and the nature it has. This study embraces a broad range of financial analyses including ratio analysis.

In this paper ratio analysis will be the tool used to measure/evaluate the performance of a given business by applying the tool to their financial statements.

2. Research question

1. What are the implications and importance of preparing financial statements in the business?

2. How financial analysis is done to financial statements and what are the technics used?

3. In which way will the results from the financial analysis (ratio analysis) be used and how may will be interpreted?

3. Statement of the problem

Information provided in the financial statements is not an end in itself as no meaningful conclusion can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and clarification of financial statements. This dilemma is what made financial analysis be the key to financial statements understanding and accordingly a key for a better decision making process.

4. Purpose of the study

The major purpose of this study is to investigate the most common problem which is measure the performance of financial statements by using one of financial analysis technics which is ratio analysis. Also to investigate the significance attached...
tracking img