FINANCIAL STATEMENT

ANALYSIS
Presented By:
Manu Dadu
Priyanka Goyal
Meaning of Financial Statements
Financial statements are summaries of the operating, financing,
and investment activities of a firm.
According to the Financial Accounting Standards Board
(FASB), the financial statements of a firm should provide
sufficient information that is useful to
investors and
creditors
in making their investment and credit decisions in an
informed way.
Analysis of financial statements means such a treatment of the
information contained in financial statements as to afford full
diagnosis of the profitability and financial position of the firm
concerned.
 TYPES OF ANALYSIS
(A) ON THE BASIS OF MATERIAL USED
i) External Analysis
ii) Internal Analysis
(B) ON THE BASIS OF MODUS OPERANDI
i) Horizontal Analysis
ii) Vertical Analysis
(C) ACCORDING TO OBJECTIVES
i) Long Term Analysis
ii) Short Term Analysis
USERS OF FINANCIAL ANALYSIS
 AN INVESTOR
 BANKERS and LENDERS
 SUPLLIERS
 EMPLOYEES
 MANAGEMENT
 REGULATORY AUTHORITIES
 DIFFERENT AGENCIES
 PURPOSE OF FINANCIAL
STATEMENT ANALYSIS
To use financial statements to evaluate an organisation’s
Financial performance
Financial position.
To have a means of comparative analysis across time in terms
of:
Intra company basis (within the company itself)
Intercompany basis (between companies)
Industry Averages (against that particular industry’s
averages)
To apply analytical tools and techniques to financial statements
to obtain useful information to aid decision making.
TOOLS OF FINANCIAL ANALYSIS
o Comparative Financial and Operating Statements
o Common size Statements
o Trend Analysis
o Average Analysis
o Statement of Changes in Working Capital
o Fund-flow and Cash-flow Analysis
o Ratio Analysis
 COMPARATIVE FINANCIAL
STATEMENTS
Comparative financial statements are the statements
which summarize and present relevant accounting
data for two or more periods, incorporating there in
the changes in individual items.
Comparative statements usually prepared are:-
Comparative Balance Sheet
Comparative Income Statements
 FORMAT OF COMPARATIVE
BALANCE SHEET
Particulars 2007 2008 Absolute Proportionate
(Rs) (Rs) Change( Rs) Change (Rs)
Source of funds
Share Capital 1,50,000 1,75,000 25,000 16.6

Reserve and Surplus 30,000 25,000 5,000 25.0

Shareholder’s Funds 1,70,000 2,00,000 30,000 17.7

Loan Funds:-
Long term loans - - - -
Total 1,70,000 2,00,000 30,000 17.7

Application of funds
(A) Fixed Assets 1,00,000 1,50,000 50,000 50
Current Assets: 70,000 50,000 (-) 20,000 (-) 28.5
Less: Current Liabilities - - - -
 FORMAT OF A COMPARATIVE
INCOME STATEMENT
Particulars 2007 2008 Absolute Proportionate
Change Change %

Rs Rs

Net Sales (i.e. after returns) 4,00,000 5,00,000 1,00,000 25

Less: Cost of Goods Sold 2,00,000 3,00,000 1,00,000 50
Gross Profit 2,00,000 2,00,000 - -
Less: Operating Expenses:
Administration, Selling & 60,000 1,00,000 40,000 66.66
Distribution Expenses
Net Operating Income 1,40,000 1,00,000 (40,000) (-) 28.57
Add: Other Incomes 25,000 35,000 10,000 40.00
Net (Profit) before tax 1,65,000 1,35,000 (30,000) (-) 18.88
Less: Tax 50,000 60,000 10,000 20.00
Net (Profit) after tax 1,15,000 75,000 (40,000) (-)34.78
 COMMON SIZE STATEMENTS
Common size financial statements are those in which
figures reported are converted into percentage to some
common base. For an interpretation of underlying causes
of changes over a period of time a vertical analysis is
required.
Common size statements usually prepared are:-
 Common size income statements
 Common size position statement ( Balance Sheet)
 FORMAT OF COMMON SIZE
BALANCE SHEET
Particulars Absolute Amount % of Balance Sheet
Amount % of Total Amount % of total
Rs. Rs

Assets:
Fixed Assets 4,00,000 66.67 4,00,000 53.33

Current Assets 2,00,000 33.33 3,50,000 46.67

Total Assets 6,00,000 100.00 7,50,000 100

Liabilities:
Share Capital 3,00,000 50.00 4,00,000 53.33
Reserves & Surplus 2,00,000 33.33 3,00,000 40.00
Current Liabilities 1,00,000 16.66 50,000 6.67

6,00,000 100.00 7,50,000 100

 FORMAT OF COMMON SIZE INCOME
STATEMENT
Particulars 2007 2008
Amount % Amount %

Sales 8,00,000 100.00 10,00,000 100.00

Less Cost of Goods Sold 5,00,000 62.50 6,00,000 60.00

Gross Profit 3,00,000 37.50 4,00,000 40.00

Less Operating Expenses

Office & Administration Expenses 50,000 6.25 75,000 7.5
Selling & distribution Expenses. 25,000 3.12 35,000 3.5
Net Income before Tax 2,25,000 28.13 2,90,000 29.0
Less Tax 20,000 2.50 25,000 2.5
Net Income after Tax 2,05,000 25.63 2,65,000 26.5