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Financial Statement Analysis in FMA - Part E
1. 19MST15 – FINANCIAL AND
MANAGEMENT ACCOUNTING
M. NANDHAKUMAR
RESEARCH ASSISTANT
ERODE SENGUNTHAR ENGINEERING COLLEGE (AUTONOMOUS)
PERUNDURAI, ERODE
2. UNIT – III FINANCIAL STATEMENT ANALYSIS
Meaning of financial statement analysis
Definition of financial statement analysis
Objectives of financial statement analysis
Nature of financial statement analysis
Functions/Uses/Importance of financial statement analysis
Types of financial statement analysis
Limitations of financial statement analysis
Tools/Techniques of financial statement analysis
3. MEANING OF FINANCIAL STATEMENT ANALYSIS
Financial analysis is also referred as “Analysis of financial
statements”. The term “Financial Analysis”, also known as an
“Analysis and interpretation of financial statements”, refers to the
process determining financial strengths and weakness of firm.
4. DEFINITION OF FINANCIAL STATEMENT
ANALYSIS
• According to Myers, “Financial statement analysis is largely a study of
relationship among the various financial factors in a business as disclosed by
single set-of statements, and study of the trend of these factor as shown in a series
of statement”.
5. OBJECTIVE OF FINANCIAL STATEMENT ANALYSIS
Measuring short – term solvency
Measuring long-term solvency
Measuring operating efficiency
Measuring profitability
Comparison of inter-firm position
Forecasting, Budgeting and Deciding future line of action
Indicating trend of achievements
Assessing growth potential of the business
6. NATURE OF FINANCIAL STATEMENT ANALYSIS
Based on recorded facts
Accounting conventions
Personal judgement
8. TYPES OF FINANCIAL STATEMENT ANALYSIS
On the basis of information used
External analysis
Internal analysis
On the basis of modes operation analysis
Horizontal analysis
Vertical analysis
9. LIMITATIONS OF FINANCIAL STATEMENT
ANALYSIS
Absence of standard universally accepted terminology
Ignoring qualitative aspects
Misleading result in absence of absolute data
Ignoring price level changing
Suffering from limitations of financial statements
Financial statements are affected by the personal ability and bias of analyst