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What is a financial statement analysis?
Financial statement analysis or simply financial analysis refers to an examination of the viability, stability and profitability of a business enterprise as a whole or a particular project that it has undertaken. It is performed by expert professionals who prepare reports using the information taken from the company’s financial statements and financial accounting. These reports are usually presented to the top management and are used as the chief tool in making business decisions. So, financial statement analysis has immense value in academics and professional world.
Based on these reports, management may take any one of the possible decisions:
- Continue or discontinue its main operation or part of its business interest
- Make or purchase certain materials in order to manufacture its product
- Acquire, rent or lease certain machineries and equipments
- Issue stocks or negotiate for a bank loan to increase its working capital
- It may also make decisions regarding investing or lending capital.
In short, it allows the management to make an informed decision regarding the overall operation of a company or a business enterprise. So, it is indeed a complicated subject which needs expert guidance. Our financial statement analysis assignment help will be the best assignment help you are looking for finance.
Components of a financial statement
As noted before, financial reports are a written statement presented either quarterly or annually to the company’s shareholders and general public which includes at least three important financial accounting statements:
- Statement of income
Statement of income shows the net profit the company had made during the financial quarter. In financial accounting, it is given by the formula:
Net Profit = Revenue – Expenses
- In order to find the net profit, an economic expert will have to add up the sales figures of the company to get the gross revenue.
- In the same way, he will have to add up all the expenses from different sources in order to get the total expenses.
- Once he has subtracted the expenses from the revenue, he will get the profit. This profit may include taxable income of the company or may exclude it.
- ‘After tax profits’ will have to be calculated after subtracting the taxes from the profits.
You can get an in depth analysis in our financial statement analysis assignments.
- Statement of cash flows
Statement of cash flows simply states how much money came in and how much money left the company in a financial sheet. It consists of three parts:
- Operating activities which show much cash was used for operating the company, which came out of the profits.
- Financial activities which show how much money was available during that quarter which came from the sale of stocks and bonds
- Investment activities which show the amount of money that was used for investment purposes.
Each of these aspects are precisely maintained and required in financial report analysis.
- Balance sheet
Balance sheet is the final step in preparing the financial reports. It is one of the key topics which require financial statement analysis help. It lists the assets of the company on one hand and the liabilities on the other along with owner’s equity.
- Assets consist of the amount receivable along with any movable or immovable asset which the company might own.
- Liabilities would include the amount payable by the company which in turn would include the expenses as well as the taxes paid by the company.
- Owner’s equity would consist of owner’s capital or the money which the owner started the financial quarter along with the owner’s draw.
- In a joint stock corporation, owner’s equity is replaced by the term stock-holder’s equity and owner’s draw is called dividends. Additionally treasury stocks which the company keeps to itself and does not sell in the stock exchange are also a part of the equity. Our financial statement analysis assignment provides a comprehensive study about it.
The formula for creating a balance sheet for a joint stock enterprise is given by the expanded accounting equation:
Assets = Liabilities + Stock holder’s Equity (Paid in capital + Revenue- Expenses- Dividends - Treasury stocks)
According to our financial statement analysis assignment experts, good reports must also carry a detailed descriptive statement of company’s economic and commercial performance, review of the ledgers and journals of the company and summary and footnotes of the accounting principles followed in the finance reports. The company financial plans or reports and the analysis of financial statement are the keys to judge the economic condition of the company.
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What are the chief goals of financial analysis?
There are four major goals of creating a financial statement analysis. They can be summarized under four sub-heads. You can also refer to our financial statement analysis help for deeper insight:
- Profitability: It refers to a class of economic metrics used to assess a business enterprise’s ability to generate income vis-à-vis its expenses. It is given by a ratio obtained from the analysis of financial statement. It is called profitability ratio under financial ratios analysis. Having a higher value of profitability ratio compared to the ratios of rival companies and that of the previous year’s means that the company is doing commercially well.
- Solvency: Solvency of a company refers to the ability of a company to meet its long-term financial goals.
- Liquidity: It refers to the ability of a company to meet its short-term economic goals. Solvency and liquidity are related terms that allow investors to look closely at a company’s economic health. If a company has high liquidity then it can sale some of its assets for cash in order to meet its expenses without becoming insolvent. On the other hand, a company which is insolvent must declare bankruptcy since it cannot meet its long term obligations. Our financial statement analysis assignment help will provide concise descriptions of it.
In our financial statement analysis assignment, we have noted that investors look at both liquidity and solvency in order to make investment decisions. It is based on a healthy debt to equity ratio which a company must have. If a company has a higher debt than equity then it means that loan payments will eat up a large part of its profits.
- Stability: Financial stability refers to the ability of a company to remain in business for a long run without incurring significant losses. It is determined by the information provided by the company financial reports in its income statement and balance sheet.
The four aforementioned aspects are discussed in our financial statement analysis assignments of financial study.
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What are methods of financial analysis?
Financial analysis is primarily done through financial ratios analysis. A financial ratio, to put in non-technical terms, is a comparison between two numerical values which are obtained from the financial sheets and information provided by a company in its balance sheet, income statement and state of stockholder’s equity. An important aspect of financial statement analysis assignment is some of the popular ratios used in financial statement analysis:
- Profitability ratio = Gross Profit Net Sales
- Profit Margin = Net Profit Net Sales
- Current Liquidity ratio = Current Assets Current Liabilities
- Quick Liquidity ratio = (Current Assets – Inventory)÷ Current Liabilities
- Debt ratio = Total Liabilities Total assets
- Earnings per share = Net Earning Earnings per share
- Dividend cover = Earnings per share Dividend per share.
These were some of the chief financial ratios which are used by economic analysts to determine the economic health of company relating to future investments and current operations. If you require financial statement analysis help, then our financial statement analysis assignments can be our ideal guide. The different important aspects of financial assignment analysis help will also help you to clear your doubts in this subject.
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