Financial statement preparation and analysis

1. ACCOUNTING FOR
MANAGERS
SWAPNIL KUMAR BISWAS
MBA SEM-1 (SECTION-B)
S.NO.-52
SUBMITTED TO:
DR.TEJAS
YADUVANSHI

2. FINANCIAL STATEMENTS
PREPARATION AND ANALYSIS

3. INCOME STATEMENT
• An income statement , also known as a profit and loss statement,
summarizes a company`s revenues, expenses, and profit over a
specific period. It provides a snapshot of a company`s financial
performance. The income statement, along with balance sheet and
cash flow statement, helps you understand the financial health of
your business. The income statement is also known as a profit and
loss statement, statement of operation, statement of financial
results or income, or earnings statement.

4. TO PREPARE AN INCOME
STATEMENT
• There are some steps of preparing the income statement
which are as follows:
• 1. Revenue Section
• 2. Cost of Goods Sold (COGS)
• 3.Operating Expenses
• 4.Operating Incomes
• 5.Non-operating Income and Expenses

5. 6.Net Income Before Tax
7.Income Tax Expenses
8.Net Income
# Remember, the income statement follows the formula:
( REVENUE – EXPENSES = NET INCOME)
It helps asses a company`s profitability and financial
health.

6. EXAMPLE
OF INCOME
STATEMENT

7. BALANCE SHEET
• A balance sheet summarises a company`s assets, liabilities and
shareholder`s equity at a specific point in time (as indicated at the
top of the statement). It is one of the fundamental document that
make up a company`s financial statement along with the income
statement, the cash flow statement and statement of retained
earnings. It is one of the core financial statements and cash flow
statement being the other two) used for evaluating the performance
of a business.

8. 5 MAIN PARTS OF BALANCE SHEET
• 1.Current assets: Cash as well as other assets you expect to
turn into cash within the next 12 months examples of
current assets include receivable and inventory.
• 2.Fixed assets: Property or equipment the company owns
and uses in its operation to generate income. Fixed assets
are purchased for long term use.

9. 3.Current Liabilities: Debts and other obligations to
creditors that will be due within the next 12 months.
4.Long term liabilities: Debts and other obligations to
creditors that will not be due in next 12 months. Example
of long term liabilities include term loans and mortages.
5.Shareholder`s equity: This is made up of common and
prefered stock, paid in-capital as well as retained
earnings, meaning the accumulated company profit that
have not been distributed to share holders.

10. EXAMPLE
OF
BALANCE
SHEET

11. ANNUAL REPORT
•What is an Annual Report ?
• An annual report is a comprehensive report detailing a
company`s activities throughout preceding year. Its
purpose is to provide users, such as shareholders or
potential investors, with information about the company`s
operations and financial performances.

12. # What does an Annual Report Contain ?
It is important to note that many annual reports are not
traditional reports with large amounts of text ; many
companies often incorporate a lot of graphics and
images, resulting in a visually appealing document.
The structure of annual report undoubtedly will vary
according to each company, but most annual reports will
generally contain the following things which are
mentioned in the next slide.

13. The most common component of
annual structure are:
1. Letter from the CEO
2. Performance Highlights
3. Financial Statements
4. Outlook for Future Years
5. Format

14. FINANCIAL STATEMENT
ANALYSIS
•RATIO ANALYSIS
Ratio analysis refers to the analysis of various pieces of
financial information in the financial statements of business.
They are mainly used by external analysis to determine
various aspect of a business, such as its profitability,
liquidity, and solvency.

15. USES OF RATIO ANALYSIS
• 1. Comparisons: One of the uses of ratio analysis is to compare a
company`s financial performance to similar firms in the industry to
understand the company`s position in the market.
• 2. Trend line: Companies can also use ratio to see if there is a trend
in financial performance.
• 3. Operational efficiency: The management of a company can also
use financial ratio analysis to determine the degree of efficiency in
the management of assets and liablities.

16. CATEGORIES OF FINANCIAL
RATIO
• 1. Liquidity ratios
• 2. Solvency ratios
• 3. Profitability ratio
• 4. Efficiency ratios
• 5. Coverage ratios
• 6. Market prospect ratios

17. COMMON SIZE STATEMENT
• Common size statement is a form of analysis and
interpretation of the financial statement. It is also known as
vertical analysis. This method analyses financial statement by
taking into consideration each of the line item as a percentage
of base amount for that particular accounting period.
• Common size statement are known as 100% statement or
component percentage statement because they are always
expressed in the form of percentages.

18. TYPES OF COMMON SIZE
STATEMENT
• 1. Common size income statement: This is one type of
common statement where the sale is taken as a base for
all the calculation.
• 2. Common size balance sheet: A common size balance
sheet is a statement in which balance sheet items are
being calculated as the ratio of each asset in relation to
the total assets. For the liabilities each liability is being
calculated as a ratio of the total liabilities.

19. THANK
YOU