Q. What is the purpose of studying or analyzing the financial statements?

1.to arrive at certain decisions.

2.it is a systematic process of analyzing the financial information.
3.Investors - book value of a company, the EPS, The PE ratio.
4.banker - current ratio, the liquidity ratio, debt equity ratio, EBIT,
EBITDA, etc.
Q. Tools and Techniques of Analysis -
1.Comparative Analysis - compare two different periods.
2.Ratio Analysis -
3.Cash Flow Analysis - deals with the cash inflow and cash outflow
- it doesn't include non-cash items like depreciation,
goodwill, patents, etc.
Q. Types of Financial Statement Analysis?
1. External Analysis - For Example - An investor is analyzing the
financial statements of ABC limited
- but this investor is not a part of that company. He
just wants to know the book
value of the company so that he can take his decision
whether to buy the shares of
that company or not. This type of analysis is called
External Analysis.
- It includes an investor, third party, and who
doesn't involve in the day-to-day
activities of the company.
2. Internal Analysis - Director, internal auditor of the company,
financial officer, managers, the top
management, etc. to arrive at certain financial
decisions.
3. Horizontal Analysis - It keeps changing. It is also called as
"Dynamick Analysis" or "Time Series Analysis"
- In horizontal analysis, analysis is done for
different years.
4. Vertical Analysis - It is also called as "Static Analysis".
- the analysis is for a single year.
5. Intra-Firm Analysis - analysis within that firm only.
Q. What is the process?
1.Arrangement of the financial statements.
2.Do the comparison (between last year and this year).
3.Analysis.
4.Interpretation.
Q. What are the drawbacks of this process?
1. Personal Bias - Personal likes, dislikes. Decision should be fair or
Impartial.
2. Analysis is done on historical basis. Figusres.
3. No qualitative study. Whether it has been spent wisely.
Q. Ratio Analysis -

Q. P/E Ratio - It is important from the investors point of view because it

measures the amount that the investors are
willing to pay for one share of the company.
- It is the relationship between Company's Stock price and Earnings Per
Share.
- Earnings are important when valuing a company's stock because
investors want to know how profitable a
company is and how profitable it will be in the future.
- A high P/E ratio indicates that the company will achieve rapid in
earnings in the future.
- A stock of these type of companies are called as "Growth Stock".
Q.