Accounting For

Managers
MBA Sem 1

Chirag Jain
Assistant Professor
Unit - 2
• Financial Analysis
• Types of Analysis
• Common Size
• Comparative
• Trend Analysis
• Ratio Analysis
• DuPont Analysis
• Cash Flow Statement
• Inter and Intra firm comparison
• Comparison with Industry
Financial Analysis
• Financial analysis is the method of reviewing companies, programs,
expenditures, and other activities relevant to finance to assess their
performance and appropriateness
• Financial analysis is usually used to determine whether an enterprise
is sufficiently stable, solvent, liquid, or competitive to warrant a
monetary investment
Types of Financial Analysis
Common Size Statements
• A common size financial statement displays items as a percentage of a
common base figure
• This type of financial statement allows for easy analysis between
companies, or between periods, for the same company
Comparative Financial Statements
• Comparative statements or comparative financial statements are
statements of financial position of a business at different periods
• These statements help in determining the profitability of the business
by comparing financial data from two or more accounting periods
Trend Analysis
• Trend Analysis is a statistical technique that tries to determine future
movements of a given variable by analyzing historical trends
• It is a method that aims to predict future behaviors by examining past
ones
• Trend analysis of financial statements helps information users to
discern percentage changes over time in the selected data
• For example, users can see whether a firm’s net profit is increasing,
decreasing, or stable, or whether there are fluctuations over the years
Ratio Analysis
• Ratio analysis is a quantitative method of gaining insight into a
company's liquidity, operational efficiency, and profitability by
studying its financial statements such as the balance sheet and
income statement
• Ratio analysis is a cornerstone of fundamental equity analysis
DuPont Analysis
• The DuPont methodology (also known as the DuPont identification or
DuPont model) is a model popularised by the DuPont Corporation for
analysing fundamental results.
• DuPont analysis is a useful technique to break down the different
return on equity (ROE) generators.
• The ROE decomposition helps investors to concentrate separately on
key indicators of financial success to define strengths and
weaknesses.
Cash Flow Statement
• A Cash Flow Statement (also called the Statement of Cash Flows)
shows how much cash is generated and used during a given time
period.
• It is one of the main financial statements analysts use in building a
three statement model.
• The main categories found in a cash flow statement are (1) operating
activities, (2) investing activities, and (3) financing activities of a
company and are organized respectively.