Financial Statement Analysis
December 4, 2009 by admin · Leave a Comment
The financial analysis process provides a systematic approach for the extraction and analysis of accounting information for a specific business purpose is required. Although reach each analysis, which helps to draw the analyst's attention on the most important information. Typical overall objectives are early detection, diagnosis, prognosis and rehabilitation. A full review of the financial statements and the notes produced a comprehensive picture of the entity and the attention to certain areas in the Detailed analysis should be mentioned. The selection of techniques to generate the required information depends on the aim of the analysis. And conditions, including common techniques Common-size statements, vertical analysis and horizontal analysis. The application of appropriate techniques is often a mechanical process, even when they are taken to ensure that the differences can be. Finally, interpretation of results requires the implementation of the results in context, for example, by comparing the results with industry benchmarks.
One technique used for the analysis of the financial statements is vertical analysis. It can be difficult, even basic financial relationships, if the numerical values an enterprise view in the financial statements. Therefore, it is helpful to build common-size statements, and perform a vertical analysis, in order to abnormal percentages Search in the common size statements, identify the elements that are too large or small value when considered in the comparison with other values in the same accounting period. Both single and multiple time period analysis can be used vertically.
Another technique used for the analysis of the financial statements is horizontal analysis. These comparisons between two or more years of annual data. Although horizontal analysis techniques can on the balance sheet, the changes in the current or a balance sheet be applied over time to quantify this type of analysis is usually to quantify changes in the focus as the profit and loss account or balance sheet will appear, whether for one year or over several years. However, for a deeper analysis of the relationship between these products an analyst must consider that certain commonly used financial ratios.
Metrics examined relationships rather than amounts. Therefore, a company can one size directly with another company or companies being compared are of a different size or in any other business operate. If analysts' published figures Compare, instead of itself is calculated conditions for them to be important, as is well known published figures have been calculated, because not all analysts metrics to calculate exactly the same way. In addition, analysts should not only figures that have lagged behind expectations, a look, but also relationships Profitability. Performance indicators are grouped into the following categories for the analysis of financial statements: economy, efficiency, liquidity and use it.
The Ability of a company is profitable key to their survival as a going concern. Common GAAP-based profitability ratios are net profit margin Return on assets, return on equity, and the DuPont identity.
Efficiency demands for money and focus on the turnover ratio, are usually in the GAAP-based efficiency analysis.
Liquidity refers to a company's ability to convert assets into cash in order to fulfill its obligations to fulfill. The ability to meet current obligations on time is important for all companies. It can be measured using working capital, the current Ratio and the acid test ratio.
One of the most widely used measures of financial leverage in the financial statement analysis is the debt-equity ratio. Another view of how a company funded capital.
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CFA Exam Prep: Level 1 Financial Statement Analysis: Long-Term Assets, Shapiro
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