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Intro To Analysis of Financial Statements

The document outlines the process of financial statement analysis, which aims to evaluate a company's past financial performance to predict future outcomes. Key steps include establishing analysis objectives, gathering relevant information, and performing various mathematical analyses. The findings should be communicated clearly, highlighting assumptions and indicating that forecasts are not guaranteed.

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36 views8 pages

Intro To Analysis of Financial Statements

The document outlines the process of financial statement analysis, which aims to evaluate a company's past financial performance to predict future outcomes. Key steps include establishing analysis objectives, gathering relevant information, and performing various mathematical analyses. The findings should be communicated clearly, highlighting assumptions and indicating that forecasts are not guaranteed.

Uploaded by

D.E. Visto
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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INTRO TO ANALYSIS OF

FINANCIAL
STATEMENTS
It has been emphasized
that the underlying
objective of financial
statements is to provide
information to various
economic decision makers.
FINANCIAL STATEMENT
ANALYSIS
1. Is the process of selecting related data from financial statements for the purpose of evaluating entity’s past financial
position and performance in order to predict the possible outcome of future operations.
Procedures in Analyzing the Financial
Statement
1. Establish the objective of the financial statement analysis
2. Gather complete information about the firm and study the industry which the firm operates
3. Perform mathematical analysis using applicable tools
4. Make conclusions relative to the established objectives
Establish the Objectives of the Analysis

• Liquidity – refers to the ability of the business to pay current maturing financial obligations.
• Solvency or Stability – refers to the ability of an entity to settle long-term debt when they mature and still remain stable
• Profitability – refers to the ability of an entity to earn an income equal to to above the industry
Gather Information about the firm and
the Industry
1. Gathering of qualitative information relative to the study conducted.
Examples: corporate vision and mission, by laws, polies and procedures, findings and reports of external auditor, manuals
Perform Mathematical Analysis
• Horizontal or comparative analysis
• Vertical or common size analysis
• Trend analysis and
• Financial mix ratio analysis
SUMMARY OF FINDINGS AND
CONCLUSIONS
• 1. the analyst should communicate or report all significant matters related to his evaluation or analysis.
• 2. the analysis should disclose the major assumptions adopted when making a forecast, including his sources of
information.
• The analyst should clearly indicate that he does not vouch for the attainment of the forecast. The results of the analysis are
mere indicators of the financial strengths and weakness of the company
• The language of the report should be simple and adapted to the ordinary user’s range of understanding.

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