ANALYSIS OF FINANCIAL

STATEMENTS
Group 4:
Shubham Agarwal - 169
Akshat Chamria - 306
Riya Jaiswal - 358
Jyotika Keshari - 384
Jayant Pachoria - 431
Kaveri Vasekar- 434
Rishika Taneja - 457
Prashant Sahu - 492
 INTRODUCTION
Purpose
● The purpose of financial statement analysis is to understand the past, evaluate the present, and forecast the future.
● By examining financial statements, we gain clarity on a company's performance, profitability, and financial health.
● Ultimately, this knowledge empowers stakeholders to make well-informed decisions.

Importance
● Financial statement analysis is crucial for various stakeholders, including investors, creditors, managers, and regulators.
● It provides a roadmap for assessing the efficiency, profitability, and sustainability of a business.
● In a dynamic business environment, accurate financial analysis serves as a compass for navigating uncertainties and seizing opportunities.

Scope
● The scope of financial statement analysis encompasses a range of techniques and methodologies.
● From ratio analysis to trend analysis, from vertical to horizontal analysis, we explore diverse tools to dissect financial data.
● Our aim is to extract meaningful insights that drive strategic decision-making and foster sustainable growth.
Characteristics of good financial statements
● True and fair value: Accurately present financial position

● Relevance: Useful information, no outdated or irrelevant data

● Understandability: Clear and easy to understand, clear language,

formatting, & explanation of complex concept

● Consistency: Same accounting policy and format through all period

● Regulatory Compliance: Follow rules and regulations set by

governing bodies

● Universality: Allow comparison across different industries and

geographies
Best Practices- Applicable to all Companies
● Compliance
Financial reporting is a regulated activity and compliance with requirements is must

● Complete
Information disclosed in the financial statements should be complete and should not
be lead to further cross questioning in the mind of users.

● Simple and Specific

Draft your notes, accounting policies, commentary or more complex areas in simple
and plain english. There will be no vague or ambiguous notes.

● Transparency
Disclose all the assumptions and bases transparently so that the users are not misled.

● Materiality
Information should be disclosed if it material. It is material if it could influence
users decisions which are based on financial statements.
Best Practices- Applicable to all Companies
● Integration of Notes
Notes are a critical tool of communication and help make the financial statements
more effective.

● Disclosure of Significant Accounting Policies

All the disclosures should be relevant, specific to the company and explain how the
accounting policies are applied.

● Disclosure of Key estimates and judgements

Details of how the estimates are derived should be included, key assumptions
involved and an analysis of sensitivity of the results should also be included.

● Integrated Approach
An annual report typically includes management commentary, information about
governance, CSR reporting along with financial statements.
Advantages & Disadvantages of Financial Statements
Analysis
Advantages
1. Assesses financial health: It provides a clear picture of
a company's financial stability and profitability.
2. Identifies trends: It helps track performance over time
to spot trends and predict future performance.
3. Informs decision-making: It empowers users to make
informed decisions about investments, lending, and
business strategies.
4. Evaluates management effectiveness: It allows
assessment of how efficiently and profitably
management is using resources.
5. Compares companies: It enables comparisons between
companies within an industry or across different
industries.
Disadvantages
1. Limited predictive power: Relies solely on past
performance, making it challenging to accurately predict
future outcomes.
2. Susceptible to bias: Can be influenced by accounting
choices and estimations, potentially leading to a distorted
picture.
3. Focuses solely on financials: Excludes non-quantifiable
factors like employee morale and brand reputation,
offering an incomplete picture.
4. Provides a static view: Represents a company's financial
health at a specific point in time, not capturing ongoing
changes.
5. Limited comparability: Differences in accounting
practices across companies can hinder fair comparisons.
Question
Solution
Solution
Solution
Question
Solution
Under Ind AS 23, Mumbai Challengers Ltd. capitalizes borrowing costs directly related to acquiring, constructing, or
producing a qualifying asset. Using a capitalization rate of 15% per annum during construction, they calculate the eligible
borrowing costs as the expenditure on the asset multiplied by the capitalization rate.
Thank You!