Financial Statement Analysis Essay

Fiscal public presentation, as a portion of fiscal direction, is the chief index of the success or failure of the companies. Fiscal public presentation analysis can be considered as the bosom of the fiscal determinations. Rational rating of the public presentation of the companies is indispensable to fix sound fiscal policies and to pull possible investors. Stockholders are interested in EPS, dividend, net worth and market value per portion. Management is interested in all facets of fiscal public presentation to follow a good fiscal direction system and for the internal control of the company. The creditors are chiefly interested in the liquidness of the company. Government is interested from the regulative point of position. Besides, other stakeholders such as economic experts, trade associations, rivals, etc are besides interested in the fiscal public presentation of the company. Therefore, all the stakeholders are interested in the public presentation of the companies but their position may be different.

Fiscal analysis helps to foreground the fiscal public presentation of the company. It is the procedure of placing the fiscal strength and failing of a house by decently set uping the relationship between the points on the Balance Sheet and those on the Net income and Loss Account ( Pandey 1992, p109 ) . It is a general term mentioning to the procedure of pull outing and analyzing information in fiscal statements for usage in direction determination devising, for illustration, fiscal analysis typically involves the usage of ratios, comparing with anterior periods and budget, and other such processs. Financial assessment is a scientific rating of the profitableness and strength of any concern concerns ( Jain 1996, p36 ) . It seeks to foreground the important impacts and relationships refering managerial public presentation, corporate efficiency, fiscal strength and failing and creditworthiness of the company ( Srivastava 1985, p59 ) .

We will write a custom essay sample on
Financial Statement Analysis Essay
or any similar topic only for you
Order now

The aim of fiscal analysis is a elaborate cause and consequence survey of the profitableness and fiscal place ( Hingorani and Ramnthan 1992 ) .

Harmonizing to Hampton, “Financial Analysis is the procedure of finding the important operating and fiscal features of a house from accounting informations and fiscal statement. The end of such analysis is to find the efficiency and public presentation of the house ‘s direction, as reflected in the fiscal records and reports” ( Hampton 1986, p85 ) . Fiscal statements are such records and studies, which contain the information required for public presentation direction. It is hence of import to analyse the fiscal statements to place the strengths and failings of the company.

The fiscal statements of a concern endeavor are intended to supply much of the basic informations used for determination devising, and in general, rating of public presentation by assorted groups such as current proprietors, possible investors, creditors, authorities bureaus, and in some case, rivals ( Benjamin et al 1975, p412 ) . Fiscal statements are the studies in which the comptroller summarizes and communicates the basic fiscal information. The fiscal statements provide the sum-up of a histories of the company- the Balance Sheet reflecting the assets, liabilities and capital as of a certain day of the month and the Net income and Loss Account demoing the consequences of operation during a period. The fiscal statements are a aggregation of informations organized harmonizing to logical and consistent accounting processs ( Hampton 1986, p85 ) . The map of fiscal statement is to convey an apprehension of some fiscal facets of the company.

Fiscal statement analysis involves measuring the fiscal statement and related footers of an entity. This may be done by comptrollers, investing analysts, recognition analysts, direction and other interested parties. Fiscal statements indicate an assessment of a company ‘s old fiscal public presentation and its future potency ( Shim and Siegel 1989, p197 ) . The analysis of a fiscal statement is done to obtain a better penetration into a house ‘s place and public presentation ( Munakarmi 2000 ) . Analyzing a fiscal statement is a procedure of measuring the relationship between constituent parts of fiscal statement to obtain a better apprehension of the house ‘s place and public presentation ( Metcalf and Titard 1976, p157 ) . The fiscal analysis is therefore the analysis of the fiscal statements, which is done to measure the public presentation of the company. Ratio Analysis, Trend Analysis, Comparative Financial Statement Analysis and Common Size Statement Analysis are the major tools of the fiscal analysis.

Fiscal statement analysis involves the calculation of ratios to measure a company ‘s fiscal place and consequences of operation ( Shim and Siegel 1989, p196 ) . Ratio is an of import tool of fiscal statement analysis. The relationship between two accounting figures, expressed mathematically is known as fiscal ratio ( Pandey 1992, p110 ) . “Ratio used as an index of yardstick for measuring the fiscal place and public presentation of the house. It helps analysts to do a quantitative opinion about the fiscal place and public presentation of the house. It uses fiscal studies and informations and summarizes the key relationship in order to measure fiscal public presentation ( Munakarmi 2000 ) . Ratio analysis is such a powerful tools of fiscal analysis that through it, the economic and fiscal place of a concern unit can be to the full x-rayed. Ratios are merely a convenient manner to sum up big measures of fiscal informations and to compare the public presentation of the houses ( Brealey and Myeres 2003 ) . Ratios are exceptionally utile tools with which 1 can judge the fiscal public presentation of the house over a period of clip ( Srivastava 1985, p63 ) . Performance ratio can supply an penetration into a bank ‘s profitableness, return on investing, capital adequateness and liquidness ( Clark 1999, p257 ) .

The above theories suggest that fiscal analysis helps to mensurate the public presentation of the companies. Different analysts desire different types of ratios, depending mostly on whom the analysts are and why the house is being evaluated. Short-run creditors are concerned with the house ‘s ability to pay its measures quickly. In the short tally, the sum of liquid assets determines the ability to pay off current liabilities. They are interested in liquidness. Long-terms creditors hold bonds or unsecured bonds ; mortgages against the house are interested in current payment of involvement and the eventual refund of the principal. The company must be sufficiently liquid in the short-run and hold equal net incomes for the long-run. They examine liquidness and the profitableness. Stockholders, in add-on to liquidness and profitableness, are concerned about the policies of the house ‘s stock. Without liquidness, the house could non pay the hard currency dividends. Without net incomes, the house could non be able to declare dividends. With hapless policies, the common stock would merchandise at a lower monetary value in the market ( Hampton 1986, p124 ) .

Analysis of the fiscal statement of a company for one twelvemonth or for a shorter period would non truly reflect the nature of its operations. For this, it is indispensable that the analysis moderately cover a longer period. The analysis made over a longer period is termed as Trend Analysis. Trend Analysis of the ratio indicates the way of alteration ( Pandey 1992, p51 ) . This method involves the computation of per centum relationship that each point bears to the same point in the basal twelvemonth. Trend per centum discloses the alterations in the fiscal and runing informations between specific periods and makes it possible to organize an sentiment as to whether favorable and unfavorable inclinations are reflected by the informations. Comparative Statement Analysis is another method of mensurating the public presentation of the company. It is used to compare the public presentation and place of the house with the mean public presentation of the industry or with other houses, such a comparing will place countries of failing which can so be addressed to rectify the state of affairs.

From the above treatment, it is clear that public presentation is the consequence of assorted financials variables. Analysis of public presentation is non limited to analysing one or two variable ( s ) . it could be analyzed with the aid of assorted fiscal indexs. Most of the surveies, nevertheless, devoted to mensurate the public presentation in footings of profitableness, stock returns, and turnover, hazard adjusted returns on investing, dividends, growing of gross revenues, market capitalisation. Analyzing stock return constitutes market monetary value per portion and dividend per portion. The tendency of such variables over the period and comparing of the consequences with the consequences of the same variables of another house or another industry indicates the comparative public presentation of the house or industry.


Hi there, would you like to get such a paper? How about receiving a customized one? Check it out