1. FINANCIAL PERFORMANCE ANALYSIS
Finance is the life i.e. blood of business. It is rightly termed as the science o f money. Finance is very essential for the smooth of the business. According to Wheeler, “Finance is that business activity which is concerned with the organization and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise”. Financial management is that management activity which is concerned with the planning and controlling of a firm financial reserve. Financial management as an academic discipline has undergone fundamental changes as regards its scope and coverage. In the early years of its evolution it was treated synonymously with the raising of funds. In the current literature pertaining to this growing academic discipline, a broader scope so as to include in addition to procurement of funds, efficient use of resources is universally recognized. Financial analysis can be defined as a study of relationship between many factors as disclosed by the statement and study of the trend of these factors. The basis for financial planning, analysis and decision-making is the financial information. Financial information is needed to predict, compare and evaluate the firm’s earning ability. It is also required to aid in economic decision making investment and financing decision making. The financing information of an enterprise is contained in the financial statements or accounting reports. The financial analysis process is identifying the performance and trend and the areas of strength and weakness of the firm by properly establishing relationships between the items of the balance sheet and profit and loss account. It is the study of the performance of the unit and therefore is aimed at the financial performance in an individual unit. This is therefore aimed at analyzing the performance and trend and the areas of strengths and weakness and the financial strength of the firm in its environment. The objectives of financial analysis is the analyzing of strength and weakness of a business undertaking by regrouping and analysis of figures obtained from a financial statement and balance sheet by the tools and techniques of management accounting. Financial analysis is regarded as the final step of accounting that results in the presentation of final and the exact data that helps the business managers, creditors and investors. In the financial analysis a ratio is used as an index for evaluating the financial position and performance of the firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and the financial position of a firm. But the accounting figures convey the meaning when it is related to some other related information for example Rs.5 Corers net profit may look impressive, but the firms performance can said to be good or bad only when net profit figures is related to the firm’s investment. 1.2 Financial Statements
Financial statement consists of summaries, information of the firm’s financial affairs, organized systematically. They are the means to present the firm’s financial situation to the users. Preparation of the financial statements is the investment decision they should be well prepared and should have sufficient information. The basic financial statements prepared for the purpose of the external reporting to owners, investors and creditors are 1. Balance sheet or statement of financial position , and 2. Profits and loss account or income statement
1.3 Ratio Analysis
Ratio analysis is the most used tool of analysis. A ratio is quotient of two numbers and is expression of relationship between the figures or two amounts. It indicative a quantitative relationship, which is used for qualified judgment and decision making. The relationship between two accounting figurers is known as ratio. These ratios may be compared with the previous year...
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