There are various advantages of financial statements analysis. The major benefit is that the investors get enough idea to decide about the investments of their funds in the specific company. Secondly, regulatory authorities like International Accounting Standards Board can ensure through financial statements analysis whether the company is following accounting standards or not. Thirdly, financial statements analysis can help the government agencies to analyze the taxation due to the company. Moreover, company can analyze its own performance over the period of time through financial statements analysis.
Using historical performance data to forecast current financial health to ensure better future of a firm. It helps the stockholders to buy more shares and the creditors to finance more while the managers to use all the resources for highest befit. It helps really to make better decision... This is AZAM from bangkok
There are various purposes of financial statement analysis such as existing company acquisition by another company, investment decisions to decide whether to invest or not in the stocks of a company, to decide whether use a fund manager to manage your investments, but more often it is carried out for granting credit to corporate borrowers by banks, investment companies etc..
The analysis comprises calculation of different ratios such as acid ratio, quick ratio, debt ratio (or leverage ratio), earnings before tax and interest etc.. All these ratios use mathematical formulas that use figures from the balance sheet, profit and loss account, cash flow statement etc.. In addition, a credit score is sometimes calculated to ascertain the credit worthiness of the corporate borrower which partly depends on figures from the financial statements. The rest of the factors that make up a credit score include past history of payments, number of defaults with previous creditors, off-balance sheet facts and figures, future plans, management's capability. Financial statement analysis tends to figure out the financial health of organization by using ratio analysis techniques. These techniques are used by investors to find out the the operational effectiveness and efficiency with which resources are being utilized by a firm. This in turn lets the investors find out whether a venture or an investment in that firm's stock would be profitable. For instance, the liquidity ratio helps one understand how much readily available cash the firm has. The asset and capital turn over ratios help us understand how well the cash and assets are being managed by a firm and return on assets and investments helps us see the efficiency of operations with another dimensions A financial Statement is a statement showing the financial position of a company on a particular date. Balance Sheet is often referred as the Financial Statement.
Analysing the Liquidity Position of a Company is called as financial statement analysis.
Purposes:
A) Knowing the Fund Flow status b) Knowing the Cash Flow Status c) Analyzing the capital structure and investment nature d) Working Capital Management e) Receivables Management
Financial statement analysis tend to figure out the financial health of organization by using ratio analysis techniques. These techniques are used by investors to find out the the operational effectiveness and efficiency with which resources are being utilized by a firm. This in turn lets the investors find out whether a venture or an investment in that firm's stock would be profitable. For instance, the liquidity ratio helps one understand how much readily available cash the firm has. The asset and capital turn over ratios help us understand how well the cash and assets are being managed by a firm and return on assets and investments helps us see the efficiency of operations with another dimensions.
