Tools of Financial Analysis

sunandaC

New member
Comparative financial statement are those statement which have been designed in a way so as to provide time perspective to various elements of financial statement. Figures for two or more periods are placed side by side to facilitate comparison.

Both the Income statement and balance sheet can be prepared in the form of comparative financial statement. However, this method is very cumbersome to study the trend with more than two periods.

2. Common – size financial statement.

Common-size financial statement are those in which figures reported are converted into percentages to some common base but they do not shows variations in respective items from periods to periods. In other words when read horizontally do not give information about the trend of antiviral items, but give the trend of their relationship to the total.

3. Trend Percentage.

Trend percentages is useful analytical device for the management. Since by substitution of percentages for large amounts the brauity and read ability are achieved and it is immensely helpful in walking a comparative study of the financial statement for several years. However trend percentages are calculated only for major items. Since the purpose is to highlight the important changes.

4. Fund-flow analysis

Fund-flow analysis becomes an important tool in the analytical kit of financial managers. It reveals the changes in working capital position. It tells about the source from which the working capital was obtained and in the open changes which have taken place behind the balance sheet.

5. Ratio Analysis

Ratio Analysis is a widely used tool of financial analysis. It is defined as the systematic user of ratio to interpret the financial statements so that the strengths and weakness of a firm as well as it is historical performance and current financial conditions can be determined. The term ratio refers to the numericals or quantative relation ship between the two items or variables. This relationship can be expressed as percentages fraction and proportion of numbers.
 

hiimanshu

New member
The income-statement leverage ratio measures the firm’s ability to meet fixed obligations of one form or another. The time interest paid, which is earnings before interest and taxes over interest expense, measures the firm’s ability to service the interest expense on its outstanding debt. A more broadly defined ratio of this type is the fixed-charge coverage ratio, which includes not only the interest expense but also all other expenses that the firm is obligated by contract to pay.
 
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