Purpose Of Financial Statement Analysis

1. What is the purpose of financial statement analysis? The purpose of financial statement analysis is to provide information used by the business, potential creditors and investors.

Financial Statement Analysis is the process of reviewing and analyzing a company’s financial statements to make better decisions. These statement includes the Income statement, Balance sheet, Statement of cash flows and a statement of changes in equity.

The analysis of financial statements is based on the use of ratios or relative values. Financial statements are used to evaluate the condition of a firm and its financial performance. The measurement and evaluation of information presented in the financial statement is known as analysis and interpretation of financial statement, of which is the relationship between financial statements and decision making process.

Financial Statements are often used to evaluate the financial position of a company. Through the analysis investors can determine the profitability of a company and decide whether to fund money into that business. The financial statements are comprise of income statement, cash flow statement and balance sheet, each of these provides useful information of earning and expenses, of cash flows, and of assets and debts.

Financial statements are used to determine the business activities of a firm and the role of accounting analysis is to determine the accuracy and quality of the information provided. This analysis would look into the degree of its accounting figures captures its business reality through the policies used and its resulting noise, potential forecast errors and its impact on Myer’s profit.

The financial analysis of a business organization involves the complete assessment of the liquidity, profitability, competitiveness and stability of the business. The process is done through using the financial statements of the business. The financial reports are generally presented to top management for purposes of decision making and setting up goals.

Profitability is the company's financial standard which helps to assess the financial return, whether it is return for each investor in the company or a company in general, and profitability reflects the effectiveness of the company in using its capital properly or its assets. Profits, as an accounting concept are often not equal to the company's cash holdings. The Company may have a strong cash position as shown in the statement of cash flows as a result of cash flows from sale of assets or financing proceeds, while it may have a weak operating

1. the income statement, 2. the balance sheet and 3. the statement of cash flows). Financial statement analysis is applied both to historical data, which reflect the results of the past managerial decisions, and to forecasted data, which comprise the roadmap for the business’s future.

Financial statement analysis helps managers to better understand the financial health of their companies. Managers compute and interpret financial ratios for asset management purposes, debt management purposes, to assess profitability and to assess their market performance versus other companies.

have explained that the Financial statements provide asummarized view of the financial position and operations of a firm. Therefore, much can belearnt about a firm from a careful examination of its financial statements as invaluabledocuments / performance reports. The analysis of financial statements is, thus, an important aidto financial analysis.

It is important for every business to carry out financial statement analysis in order to gain an understanding of their current financial status. There are two main types of financial statements that businesses commonly use when it comes to financial analysis. These are known as the Profit and Loss Account and the Statement of Financial Position. A profit and loss account consists of a list of expenses incurred by the company, against their revenues over a certain period of time. It shows whether the organisation

When you hear the phase financial statement analysis, one wonders what is stands for. financial statement analysis is one of the most important part of any company to be successful. The reason companies rely on financial statements is for the company to come profitable even if the company is small or large. When companies use financial statement, it helps them to see if they are being profitable, by being used in different areas and reviewed by different departments. Chief Financial Officer and other executives use financial statements in order to monitor the growth and its process, so if they need to implement new ideas. When they agree on future project they will probable look at the following improvements, buying a new building to move to, redesign their old building, order more merchandise that is selling rapidly, and I think the most important one is to reward employees with bonuses. Some companies are in the stock market business and with financial statement will help to continue to be on track. Investors, who rely on financial statement to decide if they should purchase or trade their stocks. Creditors are people who review loans of any business wanting to get a loan and by reviewing the company’s financial statements, they can decide how much money will be granted, how long the loan needs to be paid and what interest rate will be given. Last of all, the regulatory agencies who manage and conduct audits so

Financial statement analysis is the study of relationships between the elements of the same statement or different financial statements and the trend of these elements. The purpose of financial statement analysis is to determine the meaning and significance of the data contained in the statements so that a forecast may be made of the prospects for future earnings, expected dividends and the ability of the business to pay interest and debt as it matures. Financial statement analysis involves rearrangement of financial information, comparison, analysis and interpretation of that information.

Profitability measures the company’s ability to generate profit in their business. If the company experiences losses, management tends to delay the releasing of annual financial statement in order to avoid the discomfort of communicating as a bad news (Modugu et.al 2012) and if the company experiences profits, management tends to issue the annual financial statement as soon as possible.

The four components of financial statements are income statement, owner’s equity statement, balance sheet, and cash flow statement. Income statement, also called profit and loss statement, is the company’s financial statement that summarizes a company’s revenues and expenses which resulting net income or net loss, and provides a picture of the financial performance for a specific period of time. For example, Air Asia’s managers and investors need financial statement to assess whether Air Asia made or lost money during the period being reported. Owner’s equity statement, also called shareholders’ equity, shows the changes in owner’s equity during a specific period of time. It lists the owner equity balance at the beginning of the period, addition and subtractions to the balance, and the ending balance. Balance sheet or statement of financial position reports the assets, liabilities, and owner’s equity at a specific date, such as the end of a particular financial year. It describe as a snapshot of a company’s financial condition. For example, assets, liabilities and shareholders’ equity give Air Asia investors an idea as to what Air Asia