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8 Financial Statement

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33 views17 pages

8 Financial Statement

Uploaded by

nylojram1993
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCIAL

STATEMENT

• Define Financial Statement


Analysis
• Identify the different users of
financial statement
• Generate and analyze financial
reports in the business
“ F INANCIAL STATEMENT ANALYSIS

Is a method of reviewing and analyzing a


company’s accounting reports (Financial Statement) to
gauge its past, present, or projected future
performance. This process of reviewing the financial
statements allows for better economic decision making.

JanuaryReview
Annual
2 2, 2025
“ F INANCIAL STATEMENT ANALYSIS

Therefore, the main purpose of financial statement


is to utilize information about the past performance of
the company to predict how it will fare in the future.
Another purpose of financial statement analysis is
to identify potential problem areas and troubleshoot
those.
JanuaryReview
Annual
3 2, 2025
Users of
Financial
Statement
Analysis
“ There are different users of financial
statement analysis. These can be
classified into internal and external
users.
Internal users- refers to the management of the company
who analyzes fi nancial statements to make decisions related
to the operations of the company.

External users- do not necessarily belong to the company but still


hold some sort of fi nancial interest. These include owners, investors,
creditors, government, employees, customer, and general public.

JanuaryReview
Annual
5 2, 2025
1.
Management

The managers of the company


use their financial statement
analysis to make intelligent
decisions about their
performance.
2. Owners

Small business owners need


financial information from their
operations to whether the
business is profitable.
3. Investors

People who have purchased


stock or shares in a company
need financial information to
analyze the way the company is
performing.
They use financial statement
analysis to determine what to do
with their investments in the
company.

8
4. Creditors

Creditors are interested in


knowing if a company will be
able to honor its payment as
they become due. They use cash
flow analysis of the company’s
accounting records to measure
the company’s liquidity, or its
ability to make short-term
payment.

9
5. Government

Governing and regulating bodies


of the state look at financial
statement analysis to determine
how the economy is performing
in general so they can plan their
financial and industrial policies.

10
6. Employees

Employees need to know if their


employment is secure and if
there is a possibility of a pay
raise. They want to be abreast of
their company’s profitability and
stability.

11
7. Customers

Customers needs to know about


the ability of the company to
service its clients in the future.
The need to know about the
company’s stability of operations
is heightened if the customer is
dependent wholly on the
company for its supplies.

12
8. General
Public

Anyone in the general public, like


students, analysts, and
researches, may be interested in
using a company’s financial
statement. They may wish to
evaluate the effects of thee firm
on the environment, or the
economy, or even the local
community.

13
Methods of
Financial
Statement
Analysis
There are two main methods of analyzing
financial statements; Horizontal or trend
analysis, and Vertical analysis.

JanuaryReview
Annual
14 2, 2025
HORIZONTAL
ANALYSIS
Is the comparison of financial information
of a company with historical financial
information of the same company over
several reporting periods. It could also be
based on the ratios derived from the
financial information over the same time
span.
The main purpose is to see if the
numbers are high or low in comparison to
past records, which may be used to
investigate any causes for concern.
This method of analysis is simply
grouping all information, sorting them by
time period: weeks, months, or years.
The numbers in each period can also be
15
shown as a percentage of the numbers
expressed in the baseline
HORIZONTAL
ANALYSIS
Horizontal analysis can be performed in
one of the following methods, the
absolute comparison or percentage
comparison.
ABSOLUTE COMPARISON:
One way of performing horizontal
analysis is comparing the absolute
currency amounts of some items over a
period of time.
PERCENTAGE COMPARISON:
Percentage differences in certain items
are compared over a period of time. The
absolute currency amounts are converted
into percentages for comparison.
16
Vertical
Analysis
 Conducted of financial statements for a
single time period only. Each item in the
statement is shown as a base figure of
another item in the statement, for a given
time period, usually for a year.
 Typically, this analysis means that every
item on a balance sheet is expressed as a
percentage of total assets held by the
firm.
 Vertical analysis is also called static
analysis because it is carried out for a
single time period.

17

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