News Reader (New:
0
)
Read All
Unread All
Show short preview
X
Home
Sign Up
Forums
Forums Home
Discuss
General Talks
Debates
B-schools
International MBA
GMAT
GRE
TOEFL
IELTS
Research Reports
Get Help and Discuss Research reports
Download Reference projects
Discuss Entrance exams
Di / DS
Quant
Rc / Verbal
Personal Interview Tips
General Knowledge
Reading Material
Articles
Company profiles
Community Network
Contests, Quizes and Community Games
Stock Market
Buy, Sell, Trade
Introduce Yourself
Laugh out loud
Suggestions
User Control Panel
Latest Posts
Today's Posts
Projects
Browse Research Reports
Marketing
Finance
Accounts
Information Systems
International Business
Human Resource Management
Operations
Retail Management
Entrepreneurship
Economics
Mass Media
View All
Upload Your Research Report
Buy a Book
Institutes
Search Institutes and courses
Edit My Institute
Buy a Book
Articles
Summer Internship Contest
Banking and Finance
Human Resources
Marketing
Operations
Information Technology
Finance
Legal
Entrepreneurship
Strategy
View All
My Articles
Add an Article
Buy a Book
Blogs
View Blogs
Write a blog
My Blog
Buy a Book
Videos
View Videos
Add a Video
My Videos
Communities
Browse Communities
Create a Community
My Communities
Events
View Events
Organize an Event
My Events
Jobs
Search Jobs
Post a job
My jobs
Login
Login via Facebook?
You are currently logged in to Facebook. Would you like to autologin to the network?
or
Cancel
Remember my choice
Home
»
Projects
» Financial Statement Analysis
Financial Statement Analysis
This is a research report on
Financial Statement Analysis
uploaded by
Gaurav Mishra
in category:
All Documents
»
Finance
»
Financial Management
section of our research repository.
1547 views, 0 comments, Last Update: May 29, 2012.
CHAPTE R 25
Financial Statement Analysis
LEARNING OBJECTIVES
2
? ? ?
?
Show the use of financial ratios to get useful information from financial statements Recognize the diagnostic role of financial ratios Highlight the utility of financial ratios in credit analysis and competitive analysis as well as in determining the financial capability of the firm Understand the limitations of financial ratios
Financial Analysis
3
Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by property establishing relationships between the item of the balance sheet and the profit and loss account.
4
USERS OF FINANCIAL ANALYSIS
? Trade creditors ? Suppliers of long-term debt ? Investors ? Management
5
NATURE OF RATIO ANALYSIS
?A
financial ratio is a relationship between two accounting numbers. ? Ratios help to make a qualitative judgement about the firm’s financial performance.
6
Standards of Comparison
? Time series analysis ? Inter-firm analysis ? Industry analysis ? Proforma financial
statement analysis
Types of Financial Ratios
7
? Liquidity ratios ? Leverage ratios ? Activity ratios ? Profitability ratios
LIQUIDITY RATIOS
8
? Liquidity ratios measure
a firm’s ability to meet
its current obligations.
Current assets Current liabilities Current assets – Inventories Quick ratio = Current liabilities Cash + Marketable securities Cash ratio = Current liabilities Current ratio =
Cont…
9
LEVERAGE RATIOS
10
? ?
To judge the long-term financial position of the firm, financial leverage, or capital structure ratios are calculated. These ratios indicate mix of funds provided by owners and lenders.
Cont…
11
Cont…
12
ACTIVITY RATIOS
13
?
Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover ratios because they indicate the speed with which assets are being converted or turned over into sales. Activity ratios, thus, involve a relationship between sales and assets.
?
?
Inventory Turnover and Debtors Turnover
14
Assets Turnover Ratios
15
PROFITABILITY RATIOS
16
? The
profitability ratios are calculated to measure the operating efficiency of the company. two major types of profitability ratios are
? Generally,
calculated:
1. 2.
profitability in relation to sales profitability in relation to investment.
Cont…
17
Cont…
18
Cont…
19
Cont…
20
Cont…
21
22
FIRM’S EARNING POWER: DUPONT ?ANALYSIS the measure of the firm’s operating RONA (or ROCE) is
performance. It indicates the firm’s earning power. ? RONA can be computed as follows:
? A firm can convert its RONA into an impressive ROE
through financial efficiency.
23
COMPARATIVE STATEMENTS ANALYSIS
?A
simple method of tracing periodic changes in the financial performance of a company is to prepare comparative statements. ? Comparative financial statements will contain items at least for two periods. ? Changes—increases and decreases—in income statement and balance sheet over a period can be shown in two ways:
(1) aggregate changes and ? (2) proportional changes.
?
TREND ANALYSIS
24
? In
financial analysis the direction of changes over a period of years is of crucial importance. ? Time series or trend analysis of ratios indicates the direction of change. ? This kind of analysis is particularly applicable to the items of profit and loss account.
Cont…
25
? For
trend analysis, the use of index numbers is generally advocated. ? The procedure followed is to assign the number 100 to items of the base year and to calculate percentage changes in each items of other years in relation to the base year. This procedure may be called as “trend-percentage method.”
26
Example: Hindustan Manufacturing Company
INTER-FIRM ANALYSIS
27
? The
analysis of the financial performance of all firms in an industry and their comparison at a given point of time is referred to the cross-section analysis or the inter-firm analysis. ? To ascertain the relative financial standing of a firm, its financial ratios are compared either with its immediate competitors or with the industry average.
28
industry: Inter-firm Comparison Market Share
29
UTILITY AND LIMITATIONS OF RATIO ANALYSIS
30
UTILITY OF RATIO ANALYSIS
? the ability of the firm to meet its current obligations; ? the extent to which the firm has used its long-term
solvency by borrowing funds; ? the efficiency with which the firm is utilizing its assets in generating sales revenue ? the overall operating efficiency and performance of the firm.
Diagnostic Role of Ratios
31
? Profitability analysis ? Assets utilization ? Liquidity analysis ? Strategic Analysis
32
CAUTIONS IN USING RATIO ANALYSIS
? Standards for
comparison ? Company differences ? Price level changes ? Different definitions of variables ? Changing situations ? Historical data
Category:
All Documents
»
Finance
»
Financial Management
Tags:
Description:
Related to Financial Statement Analysis
Discussions
Projects
Articles
Blogs
Videos
Solutions Manuals, Instructor Manuals, Test Banks collection 2012
Financial Models: Why All the Fuss?
Indian banks and global challenges
Citigroup
17th Sept 2005
How to Analyse MOCKCATS
Financial Goals Choices and Performance of Firms in Malaysia
Report on Express couriers in Italy - Sector financials
Report on Direct Expansion Air Conditioning Units in Italy - SWOT analysis
Report on Paints and coating products for industrial applications - Sector financials
Report on Pharmaceutical Anti-counterfeiting Technologies: Market Analysis 2011-2021
FINANCIAL STATEMENTS AND CASH FLOW ANALYSIS
Finanacial Statement Analysis
Handout on financial statement analysis and ratios
Financial statement analysis
National Reference Center for Bioethics Literature
iFEEL launches its 2 year full time PGDM in Banking and Financial Services approved by AICTE
India Solid Waste Management Analysis
Cancer Generics Market Analysis
India CNG Vehicle Market Analysis
US Cement Industry Analysis
financial incusion
Mr. Kalpesh Mody - A Financial Expert - Mpite
Financial Instruments
JBIMS hosts Dr. Mohit Batra, CEO, Alchemy Capital for a session on “Financial Products and...
What Does Income Statement Mean?
Financial services through online portal
Career in Financial Analysis
Nifty tips and trends for today 18 April 2011
ERP Implementation:Critical Factors analysis
SNAP 2010 Analysis by Tarunceo
Use of Technical Analysis for Risk Management in the context of Derivatives
Financial Analysis
Credit analysis
icici prudential life insurance project
notes on international financial management
Global Financial Crisis
Lecture on Financial Management
B2B International Marketing Intelligence.
Twelve Things That Can Make Men Rich !!
Financial Marketing Tip's.
Fundamentals of Business Credit Analysis
Psychology of financial markets: mini-lecture
HR Planning - Markov Analysis
Financial Statement Analysis
Financial Services Hearing Opening Statement
LOGIN
Login Id
Password
Remember Me
Forgot Password?
Gaurav Mishra's Documents
introduction ..
created 1 year(s) ago,
1432 views, 0 comments
CASH MANAGEME..
created 1 year(s) ago,
1280 views, 0 comments
DIVIDEND POLI..
created 1 year(s) ago,
435 views, 0 comments
More »
Management Paradise
About Us
Press
Jobs
Buy a Book
Kartik Raichura
Legal
Terms & Conditions
Privacy Policy
Disclaimer
Copyrights
Contact Us
Help
Zeitgeist
Support
FAQs
Tour
Feedback
Partners
B School
Blog
Buy Entrance Exam Forms
BMS Blog
MBA Blog
BMM Network
Your Link Here
Follow
Copyright 2004 - 2014 Management Paradise.
Site Developed by Available.co.in
There was an error processing the request. Please try again.
Login via Facebook?
You are currently logged in to Facebook. Would you like to autologin to the network?
or
Cancel
Remember my choice
