Literature Review On Financial Statement Analysis

Financial analysis are often used by investors and are prepared by professionals (financial analyst), thus providing them with the basis for making investment decisions.d) FINANCIAL INSTITUTIONS: Financial institutions (banks and other lending company) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long term bank loan or debentures) to finance expansion and other significant expenditures.

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Helpful is the nowtine review of financial statements. Each will give important information about how efficiency and effective the business is operating.

Income statement, balance sheet and statement of cash flow are the basic and the most important financial statements which interprets the quantitative data’s of a company’s performance.

Financial statements are needed to predict, compare and evaluate a firm’s earning ability. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

It is also required to aid in economic decision making investment and financing decision making. Financial statements also show the results of the management’s stewardship of the resources entrusted to it.

Whereas foot notes have the qualitative explanation for the major transactions and the accounting policy adopted while formulating the financial statements.

The publicly traded companies publish their financial statements quarterly.

a) Income Statement Income statement measures the company’s profitability over a period of time.

In the income statement, the net income is calculated by subtracting all the expenses from income.

The financial information of an enterprise is contained in the financial statements. (2005) Accountancy (P#215) Financial Statement is generally explained as financial information which is the information relating to financial position of any firm in a capsule form. A Ohison (1999) was defined as a written report that summarizes the financial status of an organization for a stated period of time. (2005 Financial management) profitability is the ability of an entity to earn income. To meet these objectives, financial statements provide information about an entity’s: a) Assets b) Liabilities c) Equity d) Income and expenses, including gains and losses e) Contribution by and distribution to owners in their capacity as owners, and f) cash flows A complete set of financial statement comprises: 1) A statement of financial position as at the end of the period: 2) A statement of comprehensive income for the period; 3) A statement of changes in equity for the period: 4) A statement of cash flow for the period.

The use of financial statement analysis in investment decision has been addressed by a series of authors. It includes an income statement and balance sheet or statement of the financial position describing the flow of resources, profit and loss and the distribution or retention of profit. It can be assessed by computing various relevant measures including the ratio of net sales to assets, the rate earned on total assets etc. (2001), Financial Statement simply means a declaration of what is believed to be true and which, communicated in terms of monetary unit. 5) Notes of Account comprising a summary of significant accounting policies and other explanatory information; and 6) A statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements or when it reclassifies items in its financial statements. Objective of a Financial Statement Analysis Business decisions are made on the basis of the best available estimates of the outcome of such decisions.