Financial statement

analysis
Chapter- one
Presented by
Kowsur Akther
Assistant Professor (Accounting)
Dept. of Finance and Banking
Eden Mohila College, Dhaka.
Mob#01822220655
Email-akowsur@yahoo.com
Discussion topics
• Introduction, definition and scope of Financial statement analysis.
• Major financial statements and other information sources.
• Financial analysis framework.
This presentation gives you a basic understanding of the financial
statements with a view to using them as an analytical tool.
Introduction
Financial analysis refers to the process of critical examination of the
financial information contained in the financial statement inorder to
understand and make decisions regarding the operations of the firm.
The analysis shows the trend of the factors to help in evaluation of
component parts.
According to Stephen H. Penman, “ Financial statement analysis is a
set of methods for extracting information of financial statements”.
Definition of financial statement
According to the Financial Accounting Standards Board (FASB),
“Financial reporting includes not only financial statements but also
other means of communicating financial informarion about an
entetprise to its extetnal users”.
Financial statements are the consolidated form of assets,liabilities
and capital at specific date and a result of transactions for a specific
accounting period.
Numerical expression, currency, certain accounting period, particular
forms, some basic concepts and conventions, proper approval of the
authority are the features of financial statements.
Major financial statements
• Income Statement
• Statement of changes in owner’s equity
• Balance Sheet
• Cash Flow Statement
• Accounting policy and notes etc.
But the major parts of financial statement includes:
• Income Statements
• Retained Earning Statement and
• Balance Sheet
Other information sources
• Auditor’s report
• Management decision and analysis
• Supplimentary schedule
• Prospectus
• Company’s operation
• Company’s annual report
• Foot notes etc.
Scope of financial statement analysis
• Evaluating an equity investment for inclusion in a poetfolio
• Evaluating a merger and aquisition candidate
• Evaluating a subsidiary or operating division of a parent company
• Deciding whether to make a venture capital or other private equity
investment
• Determining the credit worthiness of a company in order to decide
whether to extend a loan to the company and terms to offer
• Extending credit to a customer
• Determining future net return and cash flow forecasting.
Financial analysis framework
• Nature of financial analysis
• Tools of financial analysis
• Key components of effective financial statement analysis
• Steps of financial analysis framework
 Nature of financial analysis
• External analysis: This analysis is done by outsiders who did not have
access to the detailed internal accounting records of the firm. They are
includes investors, creditors, potential creditors, govt agencies, credit
agencies and the general public.
• Internal analysis: This analysis is done by the internal financial
authorities of the company who has direct access to the delailed
accounting records of a firm. In fact, this analysis is meant actual fiancial
statement.
Tools of financial statement analysis
• Comperative financial statement
• Common size financial statement
• Ratio analysis
• Cash flow analysis
• Fund flow analysis
• Trend percentage
Key components of effective financial
statement analysis
• Business strategy analysis
• Accounting analysis
• Financial analysis
• Prospective analysis.
Steps of the financial analysis framework
• Establish objects
• Collecting data
• Processing data
• Analysis and interpretation
• Recommendation and decision taking
• Follow up
Thank you all