Scribd
Upload
607 views2 pages

Tools and Techniques of Financial Analysis

Common size statements present financial information as percentages of a total figure (usually assets, liabilities, or sales) rather than absolute values. This allows analysis of how each line item contributes to the whole. Separate common size statements are prepared for the income statement and balance sheet. Trend analysis compares ratios over multiple periods to identify whether a business is improving or declining over time. Ratio analysis develops meaningful relationships between financial statement items to assess liquidity, solvency, profitability, and financial leverage.

Uploaded by

Ashis Kumar Mohapatra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
607 views2 pages

Tools and Techniques of Financial Analysis

Common size statements present financial information as percentages of a total figure (usually assets, liabilities, or sales) rather than absolute values. This allows analysis of how each line item contributes to the whole. Separate common size statements are prepared for the income statement and balance sheet. Trend analysis compares ratios over multiple periods to identify whether a business is improving or declining over time. Ratio analysis develops meaningful relationships between financial statement items to assess liquidity, solvency, profitability, and financial leverage.

Uploaded by

Ashis Kumar Mohapatra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

4.

Common Size Statements


A vertical presentation of financial information is followed for preparing
common-size statements. Besides, the rupee value of financial statement
contents are not taken into consideration. But, only percentage is considered
for preparing common size statement.

The total assets or total liabilities or sales is taken as 100 and the balance
items are compared to the total assets, total liabilities or sales in terms of
percentage. Thus, a common size statement shows the relation of each
component to the whole. Separate common size statement is prepared for
profit and loss account as Common Size Income Statement and for balance
sheet as Common Size Balance Sheet.

5. Trend Analysis
The ratios of different items for various periods are find out and then
compared under this analysis. The analysis of the ratios over a period of years
gives an idea of whether the business concern is trending upward or
downward. This analysis is otherwise called as Pyramid Method.
6. Average Analysis
Whenever, the trend ratios are calculated for a business concern, such ratios
are compared with industry average. These both trends can be presented on
the graph paper also in the shape of curves. This presentation of facts in the
shape of pictures makes the analysis and comparison more comprehensive
and impressive.

7. Statement of Changes in Working Capital


The extent of increase or decrease of working capital is identified by preparing
the statement of changes in working capital. The amount of net working
capital is calculated by subtracting the sum of current liabilities from the sum
of current assets. It does not detail the reasons for changes in working capital.

8. Fund Flow Analysis


Fund flow analysis deals with detailed sources and application of funds of the
business concern for a specific period. It indicates where funds come from and
how they are used during the period under review. It highlights the changes in
the financial structure of the company.

9. Cash Flow Analysis


Cash flow analysis is based on the movement of cash and bank balances. In
other words, the movement of cash instead of movement of working capital
would be considered in the cash flow analysis. There are two types of cash
flows. They are actual cash flows and notional cash flows.

10. Ratio Analysis


Ratio analysis is an attempt of developing meaningful relationship between
individual items (or group of items) in the balance sheet or profit and loss
account. Ratio analysis is not only useful to internal parties of business
concern but also useful to external parties. Ratio analysis highlights the
liquidity, solvency, profitability and capital gearing.

11. Cost Volume Profit Analysis


This analysis discloses the prevailing relationship among sales, cost and profit.
The cost is divided into two. They are fixed cost and variable cost. There is a
constant relationship between sales and variable cost. Cost analysis enables
the management for better profit planning.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy