Financial Statement Analysis
Financial statement analysis is the analysis or reviewing the balance sheet, profit and loss account which helps in better decision making by company. If the financial statement analysis is good, strong by the people it is useful for company along with investors, managers and others. Financial statement analysis is also helpful in determining the performance of company in over pas years.
A bank statement is a kind of financial statement that is issued by the banks to the companies or individual customers once in the month to show the financial transactions and financial status of their accounts. Bank statement provides information regarding the beginning cash
Income statement is one of the most important of financial statements and it’s also known as profit and loss statement. It is also known as statement of operations and statement of income. The income statement shows the degree of profitability of a company in
Inventory Turnover Ratio or Stock Turnover Ratio (ITR) : Every firm has to maintain a certain level of inventory or stock of finished goods so as to be able to meet the requirements of the business. But the level of inventory should neither be
Working Capital Turnover Ratio: Definition: Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year and is calculated as follows: Working Capital
Vertical Analysis and Common Size Statements: Definition and Explanation of Vertical Analysis and Common Size Statements: Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as
Trend Percentage: Definition and Explanation: Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years’ financial data in terms of a base year. The base year equals 100%, with all other years stated in some
In real sense, ordinary shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed
Return on Capital Employed Ratio (ROCE Ratio): The prime objective of making investments in any business is to obtain satisfactory return on capital invested. Hence, the return on capital employed is used as a measure of success of a business in realizing this objective.
Return on Shareholders Investment or Net Worth Ratio: Definition: It is the ratio of net profit to share holder’s investment. It is the relationship between net profit (after interest and tax) and share holder’s/proprietor’s fund. This ratio establishes the profitability from the share holders’
Over-trading and under-trading are facets of over and under-capitalization. Over trading is a curse to the business. Over Trading : A company which is under-capitalized will try to do too much with the limited amount of capital which it has. For example it may
Over-capitalization and Under-capitalization: The total amount of funds available to an undertaking should be neither too much nor too low. An important question, therefore is the question of capitalization of the company, i.e., the determination of the amount which the company should have at
Dividend Yield Ratio: Definition: Dividend yield ratio is the relationship between dividends per share and the market value of the shares. Share holders are real owners of a company and they are interested in real sense in the earnings distributed and paid to them
Dividend Payout Ratio: Dividend payout ratio is calculated to find the extent to which earnings per share have been used for paying dividend and to know what portion of earnings has been retained in the business. It is an important ratio because ploughing back
Definition: Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage. Operating ratio measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit
Limitations of Financial Statement Analysis: Although financial statement analysis is highly useful tool, it has two limitations. These two limitations involve the comparability of financial data between companies and the need to look beyond ratios. Comparison of Financial Data: Comparison of one company with
Companies should generally use the same inventory pricing methods or interim financial reporting and make provisions for write downs to make market at interim dates on the same basis as used at annual dates when preparing published financial statements. However, the following exceptions are
Debt Service Ratio or Interest Coverage Ratio: Definition: Interest coverage ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned
Current Ratio: It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current
