Analysis and Interpretation of financial statements:

sunandaC

New member
Analysis and Interpretation of financial statements:


As stated earlier the financial statements are not useful unless they are properly analysed and interpreted. The process of analysis of financial statements involves the arrangements and rearrangement, grouping and regrouping of the financial and operational data appearing on the financial statements and the calculations of ratios and trends there from. The process of interpretation follows that of analysis and involves the attempts to arrive at logical conclusions regarding the performance and financial position of the business organization.

Types of Analysis:

There can be basically two ways in which the analysis of financial statements can be carried out.

(1) Internal Analysis: This indicates the analysis carried out by those parties who have the access to the books and records of the company. Naturally, it indicates basically the analysis carried out by the management of the company to enable the decision making process. This may also indicate the analysis carried out in the legal or statutory matters where the parties who are not a part of the management of the company may have the access to the books and records of the company.

(2) External Analysis: This indicates the analysis carried out by those parties who do have the access to the books and records of the company. This may involve the analysis carried out by creditors, prospective investors and other outsiders. Naturally, those outsiders are required to depend upon the published financial statements.

As such, the depth and correctness of the external analysis is restricted, though some of the recent amendments to the statutes like Companies Act, 19565 have make it mandatory for the companies to reveal maximum information relating to the operations and financial position, in order to facilitate the correct and proper analysis and interpretation of the financial statements by the readers.

Techniques of Analysis and Interpretation:

Though there may be numerous techniques available for the analysis and interpretation of financial statements, we will consider the following two techniques in details.

(a) Ratio Analysis.
(b) Funds Flow /Cash Flow Analysis.
 

rosemarry2

MP Guru
Analysis and Interpretation of financial statements:


As stated earlier the financial statements are not useful unless they are properly analysed and interpreted. The process of analysis of financial statements involves the arrangements and rearrangement, grouping and regrouping of the financial and operational data appearing on the financial statements and the calculations of ratios and trends there from. The process of interpretation follows that of analysis and involves the attempts to arrive at logical conclusions regarding the performance and financial position of the business organization.

Types of Analysis:

There can be basically two ways in which the analysis of financial statements can be carried out.

(1) Internal Analysis: This indicates the analysis carried out by those parties who have the access to the books and records of the company. Naturally, it indicates basically the analysis carried out by the management of the company to enable the decision making process. This may also indicate the analysis carried out in the legal or statutory matters where the parties who are not a part of the management of the company may have the access to the books and records of the company.

(2) External Analysis: This indicates the analysis carried out by those parties who do have the access to the books and records of the company. This may involve the analysis carried out by creditors, prospective investors and other outsiders. Naturally, those outsiders are required to depend upon the published financial statements.

As such, the depth and correctness of the external analysis is restricted, though some of the recent amendments to the statutes like Companies Act, 19565 have make it mandatory for the companies to reveal maximum information relating to the operations and financial position, in order to facilitate the correct and proper analysis and interpretation of the financial statements by the readers.

Techniques of Analysis and Interpretation:

Though there may be numerous techniques available for the analysis and interpretation of financial statements, we will consider the following two techniques in details.

(a) Ratio Analysis.
(b) Funds Flow /Cash Flow Analysis.

Hi sunanda,

Here I am sharing Financial Statements - Analysis and Interpretation, so please download and check it.
 

Attachments

  • Financial Statements - Analysis and Interpretation.pdf
    875 KB · Views: 0
Top