Basic Micro-Economics

Analysis of Financial Accounting

- Financial statement analysis is the process of evaluating a company’s performance
or value through a company’s balance sheet, income statement, or statement of
cash flows. By using a number of techniques such as horizontal, vertical, or ratio
analysis, investors may develop a more nuanced picture of a company’s financial
profile. Most often, analysts will use three main techniques for analysing a
company's financial statements. First, horizontal analysis involves comparing
historical data. Usually, the purpose of horizontal analysis is to detect growth trends
across different time periods. Second, vertical analysis compares items on a
financial statement in relation to each other. For instance, an expense item could be
expressed as a percentage of company sales. Finally, ratio analysis, a central part of
fundamental equity analysis, compares line-item data. P/E ratios, earnings per
share, or dividend yield are examples of ratio analysis.
Different Ratio Analysis
1. Liquidity Ratios
1.1 Current Ratio
1.2 Quick Ratio
2. Profitability Ratios
2.1 Gross Profit Ratio
2.2 Net Profit Ratio
2.3 Operating Profit Ratio
2.4 Return on Capital Employed (ROCE)
3. Solvency Ratios
3.1 Debt Equity Ratio
3.2 Interest Coverage Ratio
4. Turnover Ratios
4.1 Fixed Assets Turnover Ratio
4.2 Inventory Turnover Ratio
4.3 Receivable Turnover Ratio
5. Earnings Ratios
5.1 Profit Earnings Ratio
5.2 Earnings per Share (EPS)