VIGNESH
FINANCIAL FINANCIA L ST STA ATEMENT ANAL ANALYSIS YSIS
What is a fnancial statement? Financial statement or reort is a !oc"ment t#at enli$#tens t#e %nancial er&ormance o& a '"siness entit() Financial statement #els 'ot# e*ternal an! internal arties to +"!$e t#e '"siness) An e*cellent e*cellent %nancial statement attracts in,estors an! also #els t#e internal arties in critical !ecision ma-in$)
EXTERNAL PARTIES
INTERNAL PARTIES
INVESTORS
CEO'S
CREDITORS
MANAGERS
Financial statements can eit#er 'e a .alance s#eet/ income statement or 'ot#)
The balance sheet is developed based on the accountin e!uation Asset "liabilities "liabilities #o$ne%s& e!uit' (o% sha%eholde%&s sha%eholde%&s e!uit')*
T#e 'alance s#eet s#eet is an interestin$ interestin$ !oc"ment t#at $i,es $i,es a snas#ot snas#ot o& a coman(0s coman(0s %nancial osition !"rin$ a artic"lar erio!) .alance s#eet ans1ers t#e 2"estion 3I& t#e coman( is li2"i!ate!/ 1ill it 'e 'an-r"t4 Does it #a,e eno"$# &"n!s to #onor t#e !e'ts45 T#is 2"estion s#o"l! o " in (o"r min! 1#ile anal(6in$ 'alance s#eet
Wh' should a fnancial statement be anal'+ed? As !isc"sse! earlier Financial statement la( a cr"cial role in !ecision7ma-in$ in an or$ani6ation) It in!icates t#e er&ormance o& an or$ani6ation) Potential in,estors can
VIGNESH
FINANCIAL STATEMENT ANALYSIS "se t#e %nancial statement anal(sis tool to ma-e in,estment7relate! !ecision ma-in$)
Fi$"re 89 A .alance S#eet
FINANCIAL STATEMENT ANALYSIS
Financial statement anal'sis can be b%oadl' classifed into, -)Li!uidit' Anal'sis .)Solvenc' Anal'sis /) 0%oftabilit' anal'sis
VIGNESH
FINANCIAL STATEMENT ANALYSIS LI:;IDIT< AND SOLVENC< ANAL
:;IC= RATIO
=e( &or le,era$ e
PROFITA.ILIT< ANAL
NET SALES7 ASSET RATIO
TOTAL ASSET RATE
ACCO;NT RECIEVA.LE ANAL
SHAREHOLDER S E:;IT< RATE
INVENTOR< ANAL
PRICE7 EARNING RATIO
FIXED ASSET7 LIA.LIT< RATIO
EARNING PER SHARE AND DIVIDENDS SHARE
LIA. ILIT<7 SHAREHOLDER E:;IT< RATIO
Are (o" loo-in$ to in,est in a coman(4 T#en t#ese are ,er( imortant)
DIVIDENDS
Li!uidit' anal'sis, Li2"i!it( anal(sis/ anal(6e t#e or$ani6ation0s a'ilit( to con,ert its asset into cas#) Some o& t#e -e( arameters are9
-)Account 1eceivables Tu%nove%, It meas"res t#e a'ilit( o& t#e or$ani6ation to collect its cre!its/ it in!icates #o1 1ell t#e or$ani6ation mana$es t#e cre!its) It is $i,en '( Net Sales >A,era$e acco"nt recei,a'les
.)Invento%' tu%nove%, It meas"res t#e a'ilit( o& or$ani6ation to mana$e t#e in,entor( It is $i,en '( Cost o& $oo!s sol! >A,era$e in,entor(
Solvenc' Anal'sis Sol,enc( anal(sis/ anal(6e t#e or$ani6ation0s a'ilit( to a( its !e't)Some o& t#e -e( arameters are9
-)Cu%%ent 1atio and 2uic3 1atio, T#ese arameters meas"re t#e a'ilit( o& an or$ani6ation to meet c"rrent o'li$ations)
VIGNESH
FINANCIAL STATEMENT ANALYSIS It is $i,en '(9 C"rrent Ratio9 C"rrent assets >C"rrent lia'ilities :"ic- Ratio9 :"ic- assets >C"rrent lia'ilities
T#e 2"ic- ratio in!icates t#e 2"ic- or instant !e't a(in$ caa'ilit( o& an or$ani6ation) :"ic- assets t#at can 'e con,erte! to cas# instantl( 1#ic# incl"!es cas# ossesse! '( t#e or$ani6ation/ Acco"nts recei,a'les/ etc)
.)The %atio o4 f5ed assets to lon6te%m liabilities, T#is arameter meas"res t#e or$ani6ation0s a'ilit( to a( lon$ term !e'ts) It is $i,en '( Fi*e! assets >Lon$ term lia'ilities
/)The %atio o4 Liabilities to Sha%eholde%&s E!uit' , It meas"res t#e !e't "se! to %nance t#e assets)It $i,es an i!ea a'o"t t#e le,era$e o& an or$ani6ation)
It is $i,en '( Total lia'ilities >S#are#ol!ers e2"it()
0%oftabilit' Anal'sis Pro%ta'ilit( anal(sis/ anal(6e t#e or$ani6ation0s a'ilit( to ma-e ro%ts)Some o& t#e -e( arameters are9
-)The %atio o4 net sales to an asset, It meas"res #o1 e?ecti,el( t#e assets are "se! to earn income)
It is $i,en '(9 Net sales >Total Asset
.)1ate ea%ned on Sha%eholde%s& e!uit' , It $i,es an i!ea o& #o1 ro%ta'le are t#e assets #el! '( t#e or$ani6ation It is $i,en '( Net income>a,era$e s#are#ol!er0s e2"it(
/)Ea%nins pe% sha%e, It e,al"ates t#e ro%ta'ilit( o& in,estment '( common s#are#ol!ers It is $i,en '(9 @Net income Pre&erre! !i,i!en!sB >O"tstan!in$ S#ares
VIGNESH
FINANCIAL STATEMENT ANALYSIS 7) 8ividends pe% sha%e, It meas"res t#e e*tent to 1#ic# earnin$s are 'ein$ !istri'"te! to t#e commo s#are#ol!ers) It is $i,en '( Di,i!en!s on common stoc->S#ares o& common stoc-)
9)8ividends 'ield , It meas"res #o1 m"c# an or$ani6ation a(s its !i,i!en!s relati,e to its mar-et rice er s#are) It is $i,en '( 9 Di,i!en!s er s#are >Mar-et rice er s#are)
T#e a'o,e %nancial anal(sis arameters ai! to assess t#e %nancial er&ormance o& an or$ani6ation )T#e -e( t#in$ is %nancial statement statement m"st 'e esta'lis#e! in a &air manner an! s#o"l! #a,e comlie! 1it# $enerall( accete! %nacial rincial @GAAPB or an( sat"tor( re$"lations)
