CHAPTER 1

OVERVIEW OF FINANCIAL
STATEMENT ANALYSIS
• WHAT IS FINANCIAL STATEMENT?

• WHAT IS FINANCIAL STATEMENT ANALYSIS?

• WHAT ARE FINANCIAL STATATEMENT

ANALYSIS TOOLS?

• WHO ANALYZE FINANCIAL STATEMENT?

INTRODUCTION
• What is Financial Statement Analysis?
– an analysis of the financial reports of a company in a certain
period of time by evaluating the company’s economic prospects
and risks.
– Relies on the past accounting data in order to predict about the
future of the firm. and identify problem areas.
– Includes analysis of company’s business environment, strategies
and its financial position and performance.
– Fundamentals of financial planning and analysis applicable to
both for profit-seeking and for non-profit-seeking organizations.
– Financial statement structure and analysis is discussed, with the
objective of arriving at a financial model for an organization such
as:
• Operating activities
• Investing activities
• Financing activities
– Financial statement analysis is also employed as a tool to predict
the financial results based on a firm's strategic plans and
objectives.
• What are financial statements?
– The medium by which a company discloses
information concerning its financial performance.
– Financial statements consist of:
• Income statement,
• Balance sheet, and
• Statement of Cash flow
• How to analyze financial statements?
– The most commonly-used approaches across the
industries are:
• Ratio analysis
• Cash flow analysis
• Common size analysis
• Index trend analysis
• Equity analysis and Valuation
• Why do we analyze the financial statements?
– To identify the state of the company in terms of their
risk and return. Therefore, the results from the
analysis will shed light as to the performance of the
company.
• Who analyze the financial statements?
– Investors
– Creditors
– Government
BUSINESS ANALYSIS

• Business analysis is process of evaluating company’s

prospects and risks for the purpose of making business
decisions. These business decisions extend to equity and
debt valuation, credit risk assessment, earning predictions,
audit testing, etc.
• It’s an aids in making informed decision by helping
structure the decision task through an evaluation of a
company’s business environment, its strategies, and its
financial position and performance.
 BUSINESS ANALYSIS

EXTERNAL FACTOR INTERNAL FACTOR

Technology Competitors Regulation Financial Statement

Information Information Information
FINANCIAL STATEMENT

• A financial statement is a transaction that flow

through business activities.
• Each transaction or exchange, for example, the
sale of a product or the use of a rented building,
contributes to the whole picture.
 2
1

Balance Sheet Capital

Supplied

ASSETS LIABILITIES
• Current • Current Debt
(Short-term) •Long-term
•Fixed
(Long-term)
•Other Shareholder’s Stock
EQUITY

Cash Flow Retain Return

3

Sell Equity
Issue Debt
Buy Assets
4
Buy Inventory
Make Sales
Retain profits or
Pay Costs
“repay” debt-holders
Pay Taxes
(with interest) and
Pay Interest
stockholders (with
Pay Dividends
dividend)