FINANCIAL STATEMENT ANALYSIS

1. FINANCIAL STATEMENT ANALYSIS
Management Accounting & Practices

2. MEANING OF FINANCIAL STATEMENT ANALYSIS
❖ The term ‘Financial analysis is also known as “Analysis and interpretation” of
financial statement.
❖ Financial statements are the statements prepared at the end of the accounting
period to show the financial performance of the concern.
❖ It is the process for determining the strength
and weakness of the firm.
❖ There are two kinds of financial statement such
as:
➢ Profit and loss account
➢ Balance sheet statement

3. Objectives of financial statement analysis
★ To assess the earning capacity or profitability of the firm.
★ To assess the operational efficiency and managerial effectiveness.
★ It helps in assessing the solvency position (to pay off its financial
obligations; assets – liabilities) of the firm.
★ To identify the reasons for change in profitability and financial position of
the firm.
★ To make forecasts about future prospects of the firm.
★ To assess the progress of the firm over a period of time.
★ To help in decision making and control.

4. PARTIES INTERESTED IN FINANCIAL STATEMENT ANALYSIS
BUSINESS
CONCERN
OWNERS
MANAGEMENT
CREDITORS
EMPLOYEES
INVESTORS
GOVERNMENT
CONSUMERS

5. TOOLS AND TECHNIQUES USED IN FINANCIAL STATEMENT
ANALYSIS
TOOLS OF FINANCIAL
STATEMENT
Trend Analysis
Common Size
Analysis
Comparative
Statement
Analysis

6. LIMITATION OF FINANCIAL STATEMENT ANALYSIS
➔ Based on past data
➔ Changes in the accounting methods
➔ Different interpretation
➔ Price level changes
➔ Reliability of figures