Financial Management

Financial Statement:-

Chapter # 6

Financial Statement Analysis

A statement which is prepared to know the profit & loss made by the business and also the financial position of the business is called financial statement.

Financial Statement Analysis:The art of transferring data from financial statements into information that is useful for informed decision making. Financial Statements A Possible Framework for Analysis Balance Sheet Ratios Income Statement and Income Statement/Balance Sheet Ratios Trend Analysis Common-Size and Index Analysis

Examples of External uses of financial statement analysis: Trade Creditors -- Focus on the liquidity of the firm. Bondholders -- Focus on the long-term cash flow of the firm.

Shareholders -- Focus on the profitability and long-term health of the firm. Plan -- Focus on assessing the current financial position and evaluating potential firm opportunities. Control -- Focus on return on investment for various assets and asset efficiency. Understand -- Focus on understanding how suppliers of funds analyze the firm.

Types of Financial Statement:1) Income Statement 2) Balance Sheet 3) Cash flow statement

Income Statement:A statement which is prepared to know the profit earned or loss suffered by the business is called income statement. A summery of a firms revenues and expenses over a specified period, ending with net income or loss for the period

Prof. Muhammad Aslam (Dar-e-Arqam College Sargodha)

Financial Management
Balance Sheet:-

Chapter # 6

Financial Statement Analysis

A statement which is prepared to know the financial position of business at a particular period of time is called Balance sheet. A summary of a firms financial position on a given date that shows total assets = total liabilities + owners equity.

Cash Flow Statement:A statement which is prepared to know the cash inflows and cash outflows of the business is called Cash flow statement.

Cash Equivalent:Highly liquid, short term marketable securities that are readily convertible to known amounts of cash and generally have remaining maturities of three months or less at the time of acquisition are called cash equivalent.

Shareholders Equity:Total assets minus total liabilities referred as Shareholders equity. OR The book value of a companys common stock (at par) plus additional paid-in-capital and retained earnings

Cost of Goods Sold:It represents the sum of the costs of all goods which have been sold during the accounting period. OR Product costs (inventoriable costs) that become period expenses only when the products are sold; equal beginning inventory plus cost of goods purchased or manufactured minus ending inventory.

Statement of Retained Earning:A financial statement summarizing the changes in retained earnings for the stated period-resulting from earnings (or losses) and dividend paid. This statement is often combined with the income statement.

Prof. Muhammad Aslam (Dar-e-Arqam College Sargodha)

Financial Management

Chapter # 6

Financial Statement Analysis

1. Trend / seasonal component How much funding will be required in future?

1. Analysis of the funds needs of the firm 2. Analysis of the financial condition and profitability of the firm 3. Analysis of the business risk of the business firm.

Analytical Tools Used Sources and uses statement Statement of cash flow Cash Budgets 2. Health of Firm Financial ratios 1. 2. 3. 4. Individually Overtime In combination In comparison

Prof. Muhammad Aslam (Dar-e-Arqam College Sargodha)

Financial Management

Chapter # 6

Financial Statement Analysis

Prof. Muhammad Aslam (Dar-e-Arqam College Sargodha)