Financial Statement Analysis

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Presentation transcript:

Financial Statement Analysis Overview

Financial Analysis It is the use of financial statements to analyze a company’s financial position and performance and to assess future financial performance.

Financial Analysis consists of three broad areas. Profitability analysis Risk analysis Analysis of sources and uses of funds.

Profitability Analysis-evaluation of company’s return on investment. Risk analysis-evaluation of a company’s ability to meet its commitments. Analysis of sources and uses of fund-evaluation of how a company is obtaining and deploying its funds.

Financial statements and related disclosures inform us about four major activities of the company:- Planning Financing Investing Operating

Financial statements reflect business activities Balance sheet Income statement Statement of shareholders' equity Statement of cash flows

Links between financial statements Financial statements are linked by design. Every transaction captured in the three statements-cash flow statement, income statement and statement of shareholders’ equity-impacts the balance sheet.

Analysis tools Comparative financial statement Analysis Common-size financial statement analysis Ratio Analysis Cash flow analysis