FINANCIAL STATEMENT ANALYSIS

INTRODUCTION: 67 Anuj Kumar (B)

Financial statement analysis is a process that examines past and current financial data for the purpose of evaluating performance and estimating future risk and potentials. Financial statement analysis is used by investors, creditor, security analysts, bank lending officers, managers, governmental agencies, suppliers, and many other parties who rely on financial data for making economic decisions about a company.

Analysis of financial statements focuses primarily on data provided in external reports plus supplementary information provided by management. The analysis should identify major changes or turning points in trends, amounts, and relationships financial statements are merely summaries of detailed financial information. Many different groups are interested in getting inside financial statements, especially investors and creditors. Their objectives are sometimes different but often related. However, the basic tools and techniques of financial statement analysis can be applied effectively by all of the interested groups. Financial statement analysis can assist investors in finding the type of information they require for making decisions to their interests in a particular company.

DISCUSSION: 133 Harpreet Kaur(C)

Financial statement analysis is a study of accounting ratios between various items in financial statements. Ratios are classified as profitability ratios, liquidity ratios, asset utilization ratios, leverage ratios and valuation ratios based on the indications they provide. Balance sheet, Income Statement and Cash Flow Statements are the most important financial statements and if properly analyzed and interpreted can provide valuable insights into a company’s business.

· Income Statement – a financial statement that shows the revenues, expenses and net income of a firm over a period of time

· Balance Sheet – a financial statement that shows the value of the firm’s assets and liabilities at a particular time

· Statement of Cash Flows – a financial statement that tracks cash coming into and flowing out of a firm over a period of time

A comprehensive financial statement analysis can highlight some of the more important issues and questions a savvy investor will usually ask such as-

· Does the company have enough liquidity to overcome any short-term market fluctuations?

· How was the performance relative to the industry it belongs to?

· How risky is it to invest in this company?

· How does the company handle its working
capital?

· How did the company perform over the last couple of years and what were the returns it generated for the previous stakeholders?

CUNCLUSION: 06 Amarjeet Singh Bains(A)

In summary, financial statement analysis is concerned with balance sheet analysis and income statement analysis of a business to interpret the business ratios & financial ratios for financial modeling, financial forecasting and business valuation.

1. The balance sheet, which summarizes what a firm owns and owes at a point in time.

2. The income statement, which reports on how much a firm earned in the period of analysis.

3. The statement of cash flows, which reports on cash inflows and outflows to the firm during the period of analysis.

.