Financial Statement Analysis and Financial Forecasting

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Financial Statement Analysis and Financial Forecasting 4.1 Introduction. The lesson will consist of basic financial statements, its relevancy, reliability and quality as a basis for making decisions. Focus on the decision-making role of accounting system has to be elaborated. Also ratio analysis as decision tool with forecasting models is discussed. The basis concept of preparation of financial statement and its usefulness is included with ratio analysis. Cash flow analysis and financial planning with forecasted financial statement are covered. 4.2 Source of Financial Information. Accounting is the guide-post for management. A firm should know the financial implications of its operations. The financial score of the firm is kept by the…show more content…
It measures the firm’s profitability. In terms of the overall accounting functions, the income statement; Accumulates economic data i.e. revenue and expenses in accordance with the model. Measure net income by matching revenues and expenses according to basic accounting principles; Communicates information regarding the results of the firm’s activities to owners and others. 4.3.7 Relation between Balance Sheet and Income Statement. The balance sheet and the income statement are not two separate and independent statements, but they are related to each other. The income statement is a link between the balance sheet at the beginning of the period and the balance sheet at the end of the period. We can easily realize the CDCE Page 3 impact of income statement if we remember that revenue is an inflow of assets and expenses is an outflow of assets. Generally, the income statement is prepared to compute net income. Net profit can also be computed comparing the balance sheet at the beginning and end of the period. This fact emphasizes the role of the income statements as a link between consecutive statements of financial position. Net income for a period is equal to the change in owners’ equity during the period. Thus, as a starting point, the difference in beginning and ending owner’s equity is net income. That is; NI = OEe – OEb Where OEe is equity at the end of the period and OEb is
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