25-08-2017, 09:32 PM
Financial Statement Analysis
Financial Statement.ppt (Size: 1.05 MB / Downloads: 79)
Business Survival:
There are two key factors for business survival:
Profitability
Solvency
Profitability is important if the business is to generate revenue (income) in excess of the expenses incurred in operating that business.
The solvency of a business is important because it looks at the ability of the business in meeting its financial obligations.
Financial Statement Analysis
Financial Statement Analysis will help business owners and other interested people to analyse the data in financial statements to provide them with better information about such key factors for decision making and ultimate business survival.
Effective Financial Statement Analysis
To perform an effective financial statement analysis, you need to be aware of the organisation’s:
business strategy
objectives
annual report and other documents like articles about the organisation in newspapers and business reviews.
These are called individual organisational factors.
Effective Financial Statement Analysis
Requires that you:
Understand the nature of the industry in which the organisation works. This is an industry factor.
Understand that the overall state of the economy may also have an impact on the performance of the organisation.
Financial statement analysis is more than just “crunching numbers”; it involves obtaining a broader picture of the organisation in order to evaluate appropriately how that organisation is performing
Financial Ratio Analysis
Financial ratio analysis involves calculating and analysing ratios that use data from one, two or more financial statements.
Ratio analysis also expresses relationships between different financial statements.
Financial Ratios can be classified into 5 main categories:
Profitability Ratios
Liquidity or Short-Term Solvency ratios
Asset Management or Activity Ratios
Financial Structure or Capitalisation Ratios
Market Test Ratios