This document provides objectives and content for a 9-period unit on financial analysis. The unit aims to teach students the language and knowledge related to financial analysis work, how to write a classification essay, and how to analyze main types of financial analysis, characteristics of each type, and ratios used to analyze financial statements. The unit will cover main types of financial analysis, characteristics of each type, and ratios used to analyze financial statements.
Types of financial analysis include:
1. Intra-firm comparison analyzes a business's performance over time to identify trends and help management make policy decisions.
2. Inter-firm comparison analyzes and compares financial variables of two or more businesses to determine their relative strengths and weaknesses.
3. Industry average or standard analysis compares a business's actual results to industry standards to evaluate its performance relative to competitors.
This document provides an introduction to financial statement analysis. It discusses the key types of financial statements, including the income statement, balance sheet, statement of changes in owner's equity, and statement of changes in financial position. It also outlines different classifications and techniques for analyzing financial statements, such as external vs internal analysis, horizontal vs vertical analysis, comparative statement analysis, trend analysis, common size analysis, funds flow analysis, cash flow analysis, and ratio analysis. The overall purpose is to introduce the reader to how financial statements are constructed and various methods for evaluating the financial and operational performance of a business based on its financial reporting.
This document discusses various types and purposes of financial statement analysis. It describes external analysis conducted by outsiders without access to internal records, and internal analysis by executives with access to internal records. Horizontal analysis compares financial data over several years, while vertical analysis examines the relationship between items in one year's statements. The objectives of financial statement analysis are to understand a firm's profitability and financial position. Ratio analysis is identified as the most common analysis technique.
This document discusses financial statement analysis. It identifies the key financial statements that are analyzed - the balance sheet, income statement, and retained earnings statement. It explains the need for comparative analysis using tools like horizontal analysis, vertical analysis, and ratio analysis to evaluate a company's liquidity, profitability, and solvency. Several examples are provided to demonstrate how to compute ratios for liquidity, profitability, and solvency using information from a company's financial statements.
This document discusses various techniques for analyzing financial statements, including ratio analysis, trend analysis, common size statements, comparative statements, and funds flow analysis. Ratio analysis involves calculating relationships between financial metrics to evaluate aspects like profitability, liquidity, and leverage. Trend analysis examines changes in financial figures over multiple periods. Common size statements express figures as percentages of totals for comparison. Comparative statements place figures from different periods side by side. Funds flow analysis shows sources and uses of funds. The document provides examples of applying these techniques and discusses their significance for understanding a company's financial condition and performance.
Chapter 1 - Overview of Financial Statement Analysis
Solution Manual Wild
Financial Statement Analysis -
f i n a n c i a l
s tat e m e n t
a n a l y s i s
TENTH EDITION
K. R.
SUBRAMANYAM
JOHN J. WILD
Financial analysis provides stakeholders with an external view of a company's financial health and outlook based on its financial reports and statements. Key financial issues are highlighted and potential risks and benefits identified. Ratio and trend analysis against industry standards can reveal strengths or weaknesses that may impact profitability or require management attention. The results of financial analysis may indicate areas for further operational or strategic analysis and improve a company's financial efficiency.
Types of financial analysis include:
1. Intra-firm comparison analyzes a business's performance over time to identify trends and help management make policy decisions.
2. Inter-firm comparison analyzes and compares financial variables of two or more businesses to determine their relative strengths and weaknesses.
3. Industry average or standard analysis compares a business's actual results to industry standards to evaluate its performance relative to competitors.
This document provides an introduction to financial statement analysis. It discusses the key types of financial statements, including the income statement, balance sheet, statement of changes in owner's equity, and statement of changes in financial position. It also outlines different classifications and techniques for analyzing financial statements, such as external vs internal analysis, horizontal vs vertical analysis, comparative statement analysis, trend analysis, common size analysis, funds flow analysis, cash flow analysis, and ratio analysis. The overall purpose is to introduce the reader to how financial statements are constructed and various methods for evaluating the financial and operational performance of a business based on its financial reporting.
This document discusses various types and purposes of financial statement analysis. It describes external analysis conducted by outsiders without access to internal records, and internal analysis by executives with access to internal records. Horizontal analysis compares financial data over several years, while vertical analysis examines the relationship between items in one year's statements. The objectives of financial statement analysis are to understand a firm's profitability and financial position. Ratio analysis is identified as the most common analysis technique.
This document discusses financial statement analysis. It identifies the key financial statements that are analyzed - the balance sheet, income statement, and retained earnings statement. It explains the need for comparative analysis using tools like horizontal analysis, vertical analysis, and ratio analysis to evaluate a company's liquidity, profitability, and solvency. Several examples are provided to demonstrate how to compute ratios for liquidity, profitability, and solvency using information from a company's financial statements.
This document discusses various techniques for analyzing financial statements, including ratio analysis, trend analysis, common size statements, comparative statements, and funds flow analysis. Ratio analysis involves calculating relationships between financial metrics to evaluate aspects like profitability, liquidity, and leverage. Trend analysis examines changes in financial figures over multiple periods. Common size statements express figures as percentages of totals for comparison. Comparative statements place figures from different periods side by side. Funds flow analysis shows sources and uses of funds. The document provides examples of applying these techniques and discusses their significance for understanding a company's financial condition and performance.
Chapter 1 - Overview of Financial Statement Analysis
Solution Manual Wild
Financial Statement Analysis -
f i n a n c i a l
s tat e m e n t
a n a l y s i s
TENTH EDITION
K. R.
SUBRAMANYAM
JOHN J. WILD
Financial analysis provides stakeholders with an external view of a company's financial health and outlook based on its financial reports and statements. Key financial issues are highlighted and potential risks and benefits identified. Ratio and trend analysis against industry standards can reveal strengths or weaknesses that may impact profitability or require management attention. The results of financial analysis may indicate areas for further operational or strategic analysis and improve a company's financial efficiency.
This document provides an overview of financial statement analysis. It discusses evaluating business prospects and risks through credit analysis, equity analysis, accounting analysis, and financial analysis. These analyses examine a company's liquidity, solvency, profitability, and cash flows. Ratio analysis and valuation methods are also covered. The purpose is to evaluate a company's performance and financial position over time using its financial statements and additional information.
Horizontal analysis is also known as Trend Analysis refers to studying the behavior of individual financial statement items over several accounting periods. The Vertical Analysis concentrates on the relationships between various financial items on a financial statement. Copy the link given below and paste it in new browser window to get more information on Horizontal and Vertical Analysis:- http://www.transtutors.com/homework-help/accounting/horizontal-and-vertical-analysis.aspx
The document summarizes how financial information supports decision making in accounting. It discusses how different branches of accounting like cost accounting, tax accounting, and managerial accounting use financial information. Financial statements like the income statement and balance sheet are analyzed. Various ratios used for purposes like operations, investments, and financing are explained. Studies on how financial information impacts decision making and performance are referenced. In conclusion, financial information is important for judgment but assumptions must be considered carefully.
This document provides an overview of financial statement analysis, including:
1) Financial statements form the basis for understanding a business's financial position and assessing historical and prospective performance.
2) Financial analysis includes ratio analysis, cash flow analysis, and trend analysis to understand a business's financial soundness from different perspectives.
3) Financial statements have different meanings and uses for various stakeholders like stockholders, management, creditors, and bankers.
The document outlines key aspects of a course on financial statement analysis, including:
- The course will cover the nature, purpose, and methods of financial statement analysis as well as ratio analysis and its importance.
- Students will learn about the objectives, users, and limitations of financial statement analysis to better evaluate the financial position and performance of companies.
- The course will help students understand various liquidity, profitability, and debt ratios and be able to classify accounting ratios to assess companies' financial health for decision making.
Financial statement analysis involves calculating ratios to evaluate a company's liquidity, profitability, operational efficiency and growth potential. Key financial statements include the income statement, balance sheet, and cash flow statement. The income statement shows revenue, expenses and profits over time. The balance sheet outlines assets, liabilities and owner's equity at a point in time. Ratio analysis involves calculating ratios from the financial statements to analyze a company's activity, liquidity, solvency and profitability by comparing figures to industry averages and prior periods. Activity ratios measure asset usage efficiency, liquidity ratios assess short-term debt paying ability, and profitability ratios evaluate net income generation.
This document outlines a 4-day training programme on capital project management for the Seychelles Ministry of Finance. The training will cover topics such as capital budgeting, project initiation and planning, cost estimation, risk management, and project execution and control. Participants will learn techniques for financial analysis of projects, developing project plans, monitoring project performance, and properly closing out projects. The goal is to equip Ministry staff with skills for managing all stages of capital projects from identification of needs to final evaluation.
Financial analysis involves evaluating financial and other information to make decisions. It follows a six-step process: identify the purpose, analyze the company overview and industry, perform financial analysis techniques, conduct detailed accounting analysis, do a comprehensive analysis, and make a decision. Industry analysis considers competition, barriers, suppliers/buyers power, and business cycles. Business strategy focuses on cost leadership, product differentiation, and core competencies. Quantitative financial analysis systematically examines key financial elements using tools like ratios and cash flow analysis. The goals of financial reporting are to capture a company's business reality and reduce management discretion to provide useful information to investors.
There are three types of financial statement comparisons: intra-company, inter-company, and industry averages. Three tools are used for analysis: horizontal analysis examines trends over time, vertical analysis expresses items as a percent of a base amount, and ratio analysis includes liquidity, solvency, turnover, profitability, and market value ratios. Ratios are calculated to measure different aspects of a company's financial health and are used by creditors, stockholders, and others to evaluate performance.
Financial ratios can be used to analyze a company's liquidity, activity, debt, and profitability by comparing financial metrics over time and to other companies. The document discusses various types of ratios that fall under each of these categories and how they are calculated using figures from the income statement and balance sheet. It also introduces the DuPont analysis method, which breaks down return on equity into other component ratios to identify sources of strength or weakness.
This document provides an introduction to ratio analysis and its application to analyzing the financial statements of BHEL. It discusses ratio analysis as a technique to evaluate the financial position, performance, and trends of a company over time. The document outlines various ratio analysis tools including liquidity ratios, leverage ratios, turnover ratios, and profitability ratios. It also discusses the objectives, methodology, sources of data, and period of analysis for the ratio analysis study of BHEL's financial statements from 2005-2006 to 2010-2011.
The document discusses various financial statement analysis techniques including comparative statements, common size statements, and trend analysis.
Comparative statements allow comparison between firms, within a firm, and over time. Common size statements express each financial statement item as a percentage of a total to allow comparison. Trend analysis uses a base year to show percentage changes in items over multiple years.
The techniques help analyze profitability, liquidity, and solvency, but consistency is needed and they may provide misleading results if accounting principles change or inflation is not considered. Dynamic analysis uses percentages and absolute data over time while static analysis examines item relationships within a single statement. Reasons for trends in sales and expenses are also outlined.
The document discusses various responsibilities of financial managers including managing working capital, estimating seasonal needs, long-term financial planning, determining appropriate financing and investment mixes, and determining dividend amounts. It also discusses the interrelationships between financing, investment, and dividend decisions and how changes in one area can impact the others. Various methods of financial statement analysis are described including horizontal analysis, vertical analysis, common-size statements, trend percentages, and ratio analysis. Examples of horizontal analysis are provided comparing the balance sheet and income statement of a company between two years.
The presentation discusses the importance of financial statement analysis for business survival by analyzing profitability and solvency. It covers the purpose of financial analysis, tools such as ratio analysis and comparative statements, and limitations of only considering financial data without qualitative factors. The document provides examples of various ratios to measure profitability, liquidity, asset management, financial structure, and market performance.
Vertical Analysis is a tool of financial statement analysis which reports each amount of the three categories of accounts that are assets, liabilities and equities as the percentage of total amount that is in a proportionate way. Copy the link given below and paste it in new browser window to get more information on Vertical Analysis:- http://www.transtutors.com/homework-help/accounting/financial-statement-analysis-vertical-analysis/
UNIT - III: FINANCIAL ANALYSIS: Analysis and Interpretation of Financial statements
from investor and company point of view- Horizontal Analysis and Vertical Analysis of
Company Financial Statements – Ratios (Conversion of ratios) - Liquidity – Leverage -
Solvency and Profitability ratios -Statement of Changes in Working Capital - Funds from
Operations Funds Flow & Cash Flow statements - Pre packaged Accounting software -
Extensive Business Reports Language (XBRL).
This document discusses financial statement analysis and its importance for business survival and decision making. It outlines key factors like profitability and solvency. Financial statement analysis involves tools like ratio analysis that analyze relationships between financial data to assess a business's past performance, current condition, and future prospects. Common ratios examine aspects like profitability, liquidity, asset use, financial risk, and market indicators.
Financial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company. The numbers found on a company’s financial statements – balance sheet, income statement, and cash flow statement – are used to perform quantitative analysis and assess a company’s liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more.
Modes of Expression of Ratios:
Ratios may be expressed in any one or more of the following ways:
(a) Proportion,
(b) Rate or times
(c) Percentage.
Advantages of Ratio Analysis:
The information shown in financial statements does not signify anything individually because the facts shown are inter-related. Hence it is necessary to establish relationships between various items to reveal significant details and throw light on all notable financial and operational aspects. Ratio analysis caters to the needs of various parties interested in financial statements. The basic objective of ratio analysis is to help management in interpretation of financial statements to enable it to perform the managerial functions efficiently.
Limitations of Ratio Analysis:
Ratios are precious tools in the hands of management but the utility lies in the proper utilisation of ratios. Mishandling or misuse of ratios and using them without proper context may lead the management to a wrong direction. The financial analyst should be well versed in computing ratios and proper utilization of ratios. Like all techniques of control, ratio analysis also suffers from several ‘ifs and buts’ and for proper computation and utilization of ratios the analyst should be aware of the limitations of ratio analysis.
Uses and Users of Financial Ratio Analysis
Analysis of financial ratios serves two main purposes:
1. Track company performance
Determining individual financial ratios per period and tracking the change in their values over time is done to spot trends that may be developing in a company. For example, an increasing debt-to-asset ratio may indicate that a company is overburdened with debt and may eventually be facing default risk.
2. Make comparative judgments regarding company performance
Comparing financial ratios with that of major competitors is done to identify whether a company is performing better or worse than the industry average. For example, comparing the return on assets between companies helps an analyst or investor to determine which company is making the most efficient use of its assets.
Users of financial ratios include parties external and internal to the company:
External users: Financial analysts, retail investors, creditors, competitors, tax authorities, regulatory authorities, and industry observers
Internal users: Management team, employees, and owners
1. Financial statements are prepared primarily for decision making and play a dominant role in setting the framework for management decisions. They provide information on a company's financial position, performance, and cash flows.
2. Financial statement analysis is the process of evaluating relationships between different components of financial statements to better understand a firm's financial position and performance. It helps identify trends and relationships to evaluate profitability, liquidity, and solvency.
3. Key methods of financial statement analysis include comparative analysis, common size analysis, ratio analysis, and trend analysis, which allow comparison of financial results to historical data and industry benchmarks.
Definition of terms
"Micro business customers" means customers having less investable asset, trading transaction and return from business. They represent the lower class of wholesale banking customer segments of the Bank.
"Wholesale banking" means banking service availed to individual and non- individual business customers, public & institutional customers.
“Agent” means a person contracted by the Bank to facilitate provision of agency banking business service in the name and on behalf of the bank.
“Board” means the supervisory Board of the Bank formed in accordance with Article 10 (2) and 12 of Public Enterprises Proclamation No 25/1992.
“CBEBirr” means a mobile money service owned by CBE that provides services like mobile payment, mobile transfer, and agency banking.
“Credit History” a history of all the pieces of financial information that relates to customer’s life.
“Credit policy” means a general framework approved by the board that spells out and guides the bank’s credit/financing strategic directions and credit /financing decisions.
“Credit Scoring” means judging/evaluating the creditworthiness of a customer based on basic characteristics and past performance in credit and other relationships with Bank.
“Credit” means an arrangement to receive financial services now and pay later.
“Customer” means a person who uses Micro Saving and Lending services.
“Digital Micro Credit” means micro loans that are requested, received and repaid all through mobile phones (or any other appropriate tools) via interaction with a computer system.
“Digital MSL Policy” means a policy document that governs the management of digital micro saving and credit services.
“Financial Transaction” mean an event which involves money or payment, such as deposit money into a bank account, borrow money to customers.
“Fixed Account” means a saving account locked for a certain period, a minimum of three months, based on the preference of the customers to fulfil their designated plan.
“Know Your Customer(KYC)” means performing a set of due diligence measures undertaken by the Bank to identify a user and the motivation behind the financial activities of customers.
“Lending officials” means any person involved in MSL business of customer acquisition, Credit Worthiness evaluation, Credit operation, Collection, monitoring and decision-making as well as write off and post write off follow up process.
“Level Three agents” means agent hierarchically created as agents in CBE Birr System.
“Level Two agent” means an agent hierarchically created as sole agent in CBE Birr System and cannot create an agent. And managing the cash and balance on CBE Birr account liquidity requirements of its own.
“Loan Pricing” means setting the interest rate, fees, commission, and others to be charged by the Bank on loans, advances, and guarantees extended to customers.
“Merchant” means an entity that contract with an acquirer to originate transactions and accepts cards for payment and displaying b
This document provides an overview of financial statement analysis. It discusses evaluating business prospects and risks through credit analysis, equity analysis, accounting analysis, and financial analysis. These analyses examine a company's liquidity, solvency, profitability, and cash flows. Ratio analysis and valuation methods are also covered. The purpose is to evaluate a company's performance and financial position over time using its financial statements and additional information.
Horizontal analysis is also known as Trend Analysis refers to studying the behavior of individual financial statement items over several accounting periods. The Vertical Analysis concentrates on the relationships between various financial items on a financial statement. Copy the link given below and paste it in new browser window to get more information on Horizontal and Vertical Analysis:- http://www.transtutors.com/homework-help/accounting/horizontal-and-vertical-analysis.aspx
The document summarizes how financial information supports decision making in accounting. It discusses how different branches of accounting like cost accounting, tax accounting, and managerial accounting use financial information. Financial statements like the income statement and balance sheet are analyzed. Various ratios used for purposes like operations, investments, and financing are explained. Studies on how financial information impacts decision making and performance are referenced. In conclusion, financial information is important for judgment but assumptions must be considered carefully.
This document provides an overview of financial statement analysis, including:
1) Financial statements form the basis for understanding a business's financial position and assessing historical and prospective performance.
2) Financial analysis includes ratio analysis, cash flow analysis, and trend analysis to understand a business's financial soundness from different perspectives.
3) Financial statements have different meanings and uses for various stakeholders like stockholders, management, creditors, and bankers.
The document outlines key aspects of a course on financial statement analysis, including:
- The course will cover the nature, purpose, and methods of financial statement analysis as well as ratio analysis and its importance.
- Students will learn about the objectives, users, and limitations of financial statement analysis to better evaluate the financial position and performance of companies.
- The course will help students understand various liquidity, profitability, and debt ratios and be able to classify accounting ratios to assess companies' financial health for decision making.
Financial statement analysis involves calculating ratios to evaluate a company's liquidity, profitability, operational efficiency and growth potential. Key financial statements include the income statement, balance sheet, and cash flow statement. The income statement shows revenue, expenses and profits over time. The balance sheet outlines assets, liabilities and owner's equity at a point in time. Ratio analysis involves calculating ratios from the financial statements to analyze a company's activity, liquidity, solvency and profitability by comparing figures to industry averages and prior periods. Activity ratios measure asset usage efficiency, liquidity ratios assess short-term debt paying ability, and profitability ratios evaluate net income generation.
This document outlines a 4-day training programme on capital project management for the Seychelles Ministry of Finance. The training will cover topics such as capital budgeting, project initiation and planning, cost estimation, risk management, and project execution and control. Participants will learn techniques for financial analysis of projects, developing project plans, monitoring project performance, and properly closing out projects. The goal is to equip Ministry staff with skills for managing all stages of capital projects from identification of needs to final evaluation.
Financial analysis involves evaluating financial and other information to make decisions. It follows a six-step process: identify the purpose, analyze the company overview and industry, perform financial analysis techniques, conduct detailed accounting analysis, do a comprehensive analysis, and make a decision. Industry analysis considers competition, barriers, suppliers/buyers power, and business cycles. Business strategy focuses on cost leadership, product differentiation, and core competencies. Quantitative financial analysis systematically examines key financial elements using tools like ratios and cash flow analysis. The goals of financial reporting are to capture a company's business reality and reduce management discretion to provide useful information to investors.
There are three types of financial statement comparisons: intra-company, inter-company, and industry averages. Three tools are used for analysis: horizontal analysis examines trends over time, vertical analysis expresses items as a percent of a base amount, and ratio analysis includes liquidity, solvency, turnover, profitability, and market value ratios. Ratios are calculated to measure different aspects of a company's financial health and are used by creditors, stockholders, and others to evaluate performance.
Financial ratios can be used to analyze a company's liquidity, activity, debt, and profitability by comparing financial metrics over time and to other companies. The document discusses various types of ratios that fall under each of these categories and how they are calculated using figures from the income statement and balance sheet. It also introduces the DuPont analysis method, which breaks down return on equity into other component ratios to identify sources of strength or weakness.
This document provides an introduction to ratio analysis and its application to analyzing the financial statements of BHEL. It discusses ratio analysis as a technique to evaluate the financial position, performance, and trends of a company over time. The document outlines various ratio analysis tools including liquidity ratios, leverage ratios, turnover ratios, and profitability ratios. It also discusses the objectives, methodology, sources of data, and period of analysis for the ratio analysis study of BHEL's financial statements from 2005-2006 to 2010-2011.
The document discusses various financial statement analysis techniques including comparative statements, common size statements, and trend analysis.
Comparative statements allow comparison between firms, within a firm, and over time. Common size statements express each financial statement item as a percentage of a total to allow comparison. Trend analysis uses a base year to show percentage changes in items over multiple years.
The techniques help analyze profitability, liquidity, and solvency, but consistency is needed and they may provide misleading results if accounting principles change or inflation is not considered. Dynamic analysis uses percentages and absolute data over time while static analysis examines item relationships within a single statement. Reasons for trends in sales and expenses are also outlined.
The document discusses various responsibilities of financial managers including managing working capital, estimating seasonal needs, long-term financial planning, determining appropriate financing and investment mixes, and determining dividend amounts. It also discusses the interrelationships between financing, investment, and dividend decisions and how changes in one area can impact the others. Various methods of financial statement analysis are described including horizontal analysis, vertical analysis, common-size statements, trend percentages, and ratio analysis. Examples of horizontal analysis are provided comparing the balance sheet and income statement of a company between two years.
The presentation discusses the importance of financial statement analysis for business survival by analyzing profitability and solvency. It covers the purpose of financial analysis, tools such as ratio analysis and comparative statements, and limitations of only considering financial data without qualitative factors. The document provides examples of various ratios to measure profitability, liquidity, asset management, financial structure, and market performance.
Vertical Analysis is a tool of financial statement analysis which reports each amount of the three categories of accounts that are assets, liabilities and equities as the percentage of total amount that is in a proportionate way. Copy the link given below and paste it in new browser window to get more information on Vertical Analysis:- http://www.transtutors.com/homework-help/accounting/financial-statement-analysis-vertical-analysis/
UNIT - III: FINANCIAL ANALYSIS: Analysis and Interpretation of Financial statements
from investor and company point of view- Horizontal Analysis and Vertical Analysis of
Company Financial Statements – Ratios (Conversion of ratios) - Liquidity – Leverage -
Solvency and Profitability ratios -Statement of Changes in Working Capital - Funds from
Operations Funds Flow & Cash Flow statements - Pre packaged Accounting software -
Extensive Business Reports Language (XBRL).
This document discusses financial statement analysis and its importance for business survival and decision making. It outlines key factors like profitability and solvency. Financial statement analysis involves tools like ratio analysis that analyze relationships between financial data to assess a business's past performance, current condition, and future prospects. Common ratios examine aspects like profitability, liquidity, asset use, financial risk, and market indicators.
Financial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company. The numbers found on a company’s financial statements – balance sheet, income statement, and cash flow statement – are used to perform quantitative analysis and assess a company’s liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more.
Modes of Expression of Ratios:
Ratios may be expressed in any one or more of the following ways:
(a) Proportion,
(b) Rate or times
(c) Percentage.
Advantages of Ratio Analysis:
The information shown in financial statements does not signify anything individually because the facts shown are inter-related. Hence it is necessary to establish relationships between various items to reveal significant details and throw light on all notable financial and operational aspects. Ratio analysis caters to the needs of various parties interested in financial statements. The basic objective of ratio analysis is to help management in interpretation of financial statements to enable it to perform the managerial functions efficiently.
Limitations of Ratio Analysis:
Ratios are precious tools in the hands of management but the utility lies in the proper utilisation of ratios. Mishandling or misuse of ratios and using them without proper context may lead the management to a wrong direction. The financial analyst should be well versed in computing ratios and proper utilization of ratios. Like all techniques of control, ratio analysis also suffers from several ‘ifs and buts’ and for proper computation and utilization of ratios the analyst should be aware of the limitations of ratio analysis.
Uses and Users of Financial Ratio Analysis
Analysis of financial ratios serves two main purposes:
1. Track company performance
Determining individual financial ratios per period and tracking the change in their values over time is done to spot trends that may be developing in a company. For example, an increasing debt-to-asset ratio may indicate that a company is overburdened with debt and may eventually be facing default risk.
2. Make comparative judgments regarding company performance
Comparing financial ratios with that of major competitors is done to identify whether a company is performing better or worse than the industry average. For example, comparing the return on assets between companies helps an analyst or investor to determine which company is making the most efficient use of its assets.
Users of financial ratios include parties external and internal to the company:
External users: Financial analysts, retail investors, creditors, competitors, tax authorities, regulatory authorities, and industry observers
Internal users: Management team, employees, and owners
1. Financial statements are prepared primarily for decision making and play a dominant role in setting the framework for management decisions. They provide information on a company's financial position, performance, and cash flows.
2. Financial statement analysis is the process of evaluating relationships between different components of financial statements to better understand a firm's financial position and performance. It helps identify trends and relationships to evaluate profitability, liquidity, and solvency.
3. Key methods of financial statement analysis include comparative analysis, common size analysis, ratio analysis, and trend analysis, which allow comparison of financial results to historical data and industry benchmarks.
Definition of terms
"Micro business customers" means customers having less investable asset, trading transaction and return from business. They represent the lower class of wholesale banking customer segments of the Bank.
"Wholesale banking" means banking service availed to individual and non- individual business customers, public & institutional customers.
“Agent” means a person contracted by the Bank to facilitate provision of agency banking business service in the name and on behalf of the bank.
“Board” means the supervisory Board of the Bank formed in accordance with Article 10 (2) and 12 of Public Enterprises Proclamation No 25/1992.
“CBEBirr” means a mobile money service owned by CBE that provides services like mobile payment, mobile transfer, and agency banking.
“Credit History” a history of all the pieces of financial information that relates to customer’s life.
“Credit policy” means a general framework approved by the board that spells out and guides the bank’s credit/financing strategic directions and credit /financing decisions.
“Credit Scoring” means judging/evaluating the creditworthiness of a customer based on basic characteristics and past performance in credit and other relationships with Bank.
“Credit” means an arrangement to receive financial services now and pay later.
“Customer” means a person who uses Micro Saving and Lending services.
“Digital Micro Credit” means micro loans that are requested, received and repaid all through mobile phones (or any other appropriate tools) via interaction with a computer system.
“Digital MSL Policy” means a policy document that governs the management of digital micro saving and credit services.
“Financial Transaction” mean an event which involves money or payment, such as deposit money into a bank account, borrow money to customers.
“Fixed Account” means a saving account locked for a certain period, a minimum of three months, based on the preference of the customers to fulfil their designated plan.
“Know Your Customer(KYC)” means performing a set of due diligence measures undertaken by the Bank to identify a user and the motivation behind the financial activities of customers.
“Lending officials” means any person involved in MSL business of customer acquisition, Credit Worthiness evaluation, Credit operation, Collection, monitoring and decision-making as well as write off and post write off follow up process.
“Level Three agents” means agent hierarchically created as agents in CBE Birr System.
“Level Two agent” means an agent hierarchically created as sole agent in CBE Birr System and cannot create an agent. And managing the cash and balance on CBE Birr account liquidity requirements of its own.
“Loan Pricing” means setting the interest rate, fees, commission, and others to be charged by the Bank on loans, advances, and guarantees extended to customers.
“Merchant” means an entity that contract with an acquirer to originate transactions and accepts cards for payment and displaying b
The document appears to be a student's project report on financial ratio analysis of Wipro. It includes an acknowledgment section thanking individuals who supported and guided the project. It also includes a declaration by the student stating that the work is original. The project report includes various chapters that will analyze Wipro's financial ratios to assess the company's performance and financial position. It provides an overview of the objectives and methodology that will be used in the ratio analysis.
1. The document is a student's project report on the financial ratio analysis of Wipro. It includes an acknowledgment section thanking various professors and institutions for their support and guidance.
2. There is a declaration by the student stating that the project is their original work and submitted for their Master's degree program.
3. The project contains a certificate from the student's teacher guide confirming they completed the research project on the given topic under their guidance.
Financial ratios and their use in understanding Financial StatementsPranav Dedhia
An introduction and in-depth understanding on the importance of Financial ratios in understanding financial statements of business entities along with relevant examples
This document presents a project work on ratio analysis as a tool for financial analysis. It discusses ratio analysis as a technique for evaluating a company's financial condition and performance by calculating and comparing various financial ratios. The document defines key terms related to ratio analysis and outlines its objectives and procedures. It also classifies common financial ratios into five main categories: leverage ratios, liquidity ratios, profitability ratios, turnover/asset utilization ratios, and valuation ratios. Examples of important ratios under each category are provided.
presentationjalal(2) (1).pptx analysis of financial managementAzharMahmoodMahmood
Financial statement analysis involves examining a company's balance sheet, income statement, and cash flow statement. The balance sheet provides a snapshot of assets, liabilities, and equity. The income statement shows revenues, expenses, and profits. The cash flow statement breaks down operating, investing, and financing cash flows. Analysts use various ratios to evaluate liquidity, coverage, profitability, and evaluate trends over time.
The document provides information about financial statement analysis. It defines financial statement analysis as the process of evaluating relationships between parts of financial statements to understand a firm's position and performance. It discusses the different types of financial statements and the various users of financial statements, including management, creditors, investors, and government. It also outlines different types of financial analysis, including ratio analysis and comparative statement analysis. Ratio analysis is described as a key tool that establishes relationships between financial metrics to evaluate a firm's liquidity, leverage, activity, and profitability.
Financial and Managerial Accounting NoteAbdulAhmed73
This document provides an overview of financial statement analysis. It discusses the different types of financial statement analysis including horizontal analysis, vertical analysis, comparative statement analysis, trend analysis, common size analysis, funds flow analysis, cash flow statement analysis, and ratio analysis. It outlines the different ratios used in financial analysis including liquidity ratios, activity ratios, solvency/leverage ratios, and profitability ratios. It also discusses the different users of financial statement analysis and their interests including lenders, shareholders/investors, employees, regulatory agencies, and management.
1. The document discusses ratio analysis and financial analysis. Ratio analysis is a tool that evaluates the financial position and performance of a firm by establishing relationships between financial statement items.
2. Financial analysis identifies the financial strengths and weaknesses of a firm. It is done by analyzing ratios calculated from a firm's balance sheet and income statement. Key ratios include liquidity ratios, profitability ratios, and leverage ratios.
3. Ratio analysis involves comparing a firm's ratios to standards like its own past ratios, competitor ratios, industry averages, and projected ratios. This allows users to evaluate the firm's financial stability, profitability, and efficiency over time.
Financial statement analysis involves identifying trends, performing ratio analyses, and comparing financial results over multiple periods. It is used by creditors to evaluate debt repayment ability, investors to assess profitability and growth, and management and regulators to ensure compliance. There are two main methods - horizontal analysis compares financials over time, while vertical analysis expresses statements as percentages of other items within a period. Ratio analysis calculates relationships between financial values and compares to standards. Financial statement analysis provides valuable insight but results may be limited by differences in accounting practices and lack of operational details between companies.
The document discusses analyzing financial statements to assess a company's financial health. It explains that financial statement analysis involves examining a company's balance sheet, income statement, cash flow statement, and notes. Various types of ratios are used to evaluate aspects like liquidity, profitability, efficiency, and solvency. Conducting ratio analysis and cross-sectional analysis allows stakeholders to gain insights into a company's performance, position, and prospects.
Analysis of financial statements on ideaMohit Khurana
Idea Cellular is one of the top three mobile operators in India with nearly 200 million subscribers, making it the sixth largest mobile operator globally. It offers 2G, 3G, and 4G services across India as well as national and international long distance services. Idea aims to expand into digital services like payments, entertainment, and communications to transform from a mobile operator into an integrated digital solutions provider. It has one of the largest networks in India covering over 400,000 towns and villages. Idea has received several awards for its innovations and was recognized as the best company of 2015 for its successful initiatives in customer service, marketing, and infrastructure.
The document discusses key elements of financial statement analysis including the four main financial statements, understanding the industry and company strategies, assessing the quality of financial statements, and analyzing current profitability and risk. It provides examples of various techniques used in financial statement analysis such as horizontal analysis, vertical analysis, common-size analysis, and calculating financial ratios to evaluate liquidity, asset management, debt, and profitability.
financial management project- ratio analysisyogita varma
This document is a project report submitted by Miss Yogita Savarmal Varma to the University of Mumbai for an M.Com degree. The report analyzes the financial ratios of Idea Cellular Ltd for the academic year 2016-2017 under the guidance of Prof. Karim. The report includes a declaration by the student, acknowledgements, a table of contents, an introduction to financial management and ratio analysis, an introduction to Idea Cellular Ltd, financial statements of Idea Cellular Ltd, calculations of various financial ratios, and a conclusion.
This document discusses the analysis of financial statements. It begins by defining financial statement analysis as the process of evaluating financial information in statements like the income statement and balance sheet to understand a firm's operations and make decisions. The analysis involves simplifying and interpreting this financial data.
The significance of financial statement analysis is then outlined for different users like managers, investors, lenders, etc. It allows them to assess the firm's profitability, financial position, ability to repay debts, and more. Various tools for analysis are also introduced, including comparative statements to analyze trends over time and common size statements to compare items as percentages.
FINANCIAL PERFORMANCE ANALYSIS OF BHARTI AIRTEL LIMITEDyashmin khatun
This document discusses financial statement analysis and ratio analysis. It provides background on analyzing a company's financial stability, profitability, and performance over time using various ratios and comparisons. The objectives are to analyze the financial position, liquidity, and profitability of Bharti Airtel over a five year period and identify its financial strengths and weaknesses. Limitations include a lack of structured data from the company and a limited three year study period relying on secondary data. A literature review found previous research analyzing the relationship between working capital management, cash conversion cycles, and company profitability.
This document discusses various techniques for financial analysis, including ratios and fund flow statements, with a focus on DuPont analysis. It defines financial analysis and its goals of assessing profitability, solvency, liquidity, and stability. Common methods are comparing financial ratios over time, between companies, and using percentage and comparative analyses. DuPont analysis breaks down return on equity into net profit margin, asset turnover, and financial leverage. It provides insight into a company's strengths and weaknesses.
The document provides an overview of financial statement analysis, including the different types of analysis. It discusses internal and external analysis, short-term and long-term analysis, horizontal and vertical analysis. It also defines various accounting ratios used in analysis, such as liquidity ratios, profitability ratios, leverage ratios, and activity/efficiency ratios. Specific types of ratios discussed include the current ratio, debt-to-equity ratio, gross profit margin, and inventory turnover ratio. The document also covers limitations of financial statements and how to prepare horizontal and vertical analyses.
The document discusses the history and development of artificial intelligence over several decades. Early research focused on symbolic approaches using rules and logic but progress was slow. More recently, machine learning techniques such as deep learning have seen increasing success by learning from large amounts of data without being explicitly programmed. These new approaches have achieved human-level performance on some tasks but full human-level AI remains an ongoing challenge.
Gender and Mental Health - Counselling and Family Therapy Applications and In...PsychoTech Services
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Temple of Asclepius in Thrace. Excavation resultsKrassimira Luka
The temple and the sanctuary around were dedicated to Asklepios Zmidrenus. This name has been known since 1875 when an inscription dedicated to him was discovered in Rome. The inscription is dated in 227 AD and was left by soldiers originating from the city of Philippopolis (modern Plovdiv).
A Visual Guide to 1 Samuel | A Tale of Two HeartsSteve Thomason
These slides walk through the story of 1 Samuel. Samuel is the last judge of Israel. The people reject God and want a king. Saul is anointed as the first king, but he is not a good king. David, the shepherd boy is anointed and Saul is envious of him. David shows honor while Saul continues to self destruct.
1. FINANCIAL ANALYSIS
47
Unit 4: Financial analysis
UNIT OBJECTIVES - MỤC TIÊU
DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT)
• Provide students with the language and knowledge related to the work of financial analysis.
Cung cấp cho sinh viên vốn ngôn ngữ và kiến thức liên quan đến công việc phân tích
tài chính.
• Provide students with the language and method to write a classification essay.
Cung cấp cho học viên ngôn ngữ và phương pháp để viết một bài luận phân loại.
• At the end of this unit, students will be able to tell and write about main types of financial
analysis, the main characters of each type and some ratios in analyzing financial statements.
Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các cách phân tích tài chính cơ
bản, những đặc điểm chính của từng loại và một số chỉ số trong phân tích báo cáo tài chính.
In this unit, we will learn language and knowledge related to main types
of financial analysis, the main characters of each type and some ratios
in analyzing financial statements.
Trong bài học này, chúng ta sẽ học về ngôn ngữ và kiến thức liên quan
tới các phương thức phân tích tài chính, đặc điểm của từng loại và các
chỉ số trong phân tích các báo cáo tài chính.
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2. 48
Unit 4: Financial analysis
Match the terms or concepts in column A with their definitions in column B. The
suggested time to do this exercise is 10 minutes.
Column A Column B
1 Business cycle A A detailed examination or report on financial
performance
2 Financial instrument B The difference between the price of goods paid by a
shopkeeper and the price paid by the customer
3 Financial statement
analysis
C An amount of money received from sales of goods
minus the cost of manufacturing or buying them
4 Gross margin D The examination of two or more organizations that
produce similar goods or carry out the same stage of
the production process
5 Gross profit E Any stock, share, money, or other financial security
6 Horizontal analysis F Recurring fluctuations in economic activity consisting
of recession and recovery and growth and decline
7 Liquidity
Liquidity ratio
G Having enough money to pay your debts; having an
excess of assets over liabilities
8 Net sales revenue H The examination based on the relationship between
two amounts determined by the number of times one
contains the other
9 Ratio analysis I The examination of a movement in a certain direction
10 Solvency
Solvency ratio
J Finance of assets that are easily turned into cash
the relationship between the amount of money held
in cash and the total amount held in deposits and
investments
11 Trend analysis K The amount of money made from the sale of goods
minus the cost of producing, selling and distributing
them
12 Vertical analysis L The examination of two or more organizations that deal
with different stages in a production process
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3. 49
Unit 4: Financial analysis
Text A: Read the text do exercise 2.1 and 2.2 below. The suggested time for
reading the text and completing the exercise is 30 minutes.
FINANCIALANALYSIS
Financial analysis
F inancial statement analysis
is the process of examining
relationships among financial
statement elements and making
comparisons with relevant
information. It is a valuable tool
used by investors and creditors,
financial analysts, and others in
their decision-making rocesses
related to stocks, bonds, and
other financial instruments.
The goal in analyzing financial
statements is to assess past
performance and current
financial position and to make
predictions about the future
performance of a company.
Investors who buy stock
are primarily interested in a
company's profitability and
their prospects for earning a
return on their investment by
receiving dividends and/or
increasing the market value of
their stock holdings. Creditors
and investors who buy debt
securities, such as bonds, are
more interested in liquidity
and solvency: the company's
short-and long-run ability to
pay its debts. Financial analysts,
who frequently specialize in
following certain industries,
routinely assess the profitability,
liquidity, and solvency of
companies in order to make
recommendations about the
purchase or sale of securities,
such as stocks and bonds.
Analysts can obtain useful
information by comparing a
company's most recent financial
statements with its results in
previous years and with the
results of other companies in
the same industry. Three primary
types of financial statement
analysis are commonly known
as horizontal analysis, vertical
analysis, and ratio analysis.
Horizontal Analysis
W hen an analyst compares
financial information for
two or more years for a single
company, the process is referred
to as horizontal analysis, since
the analyst is reading across the
page to compare any single line
item, such as sales revenues.
In addition to comparing dollar
amounts, the analyst computes
percentage changes from year
to year for all financial statement
balances, such as cash and
inventory. Alternatively, in
comparing financial statements
for a number of years, the
analyst may prefer to use a
variation of horizontal analysis
called trend analysis. Trend
analysis involves calculating
each year's financial statement
balances as percentages of the
first year, also known as the
base year. When expressed
as percentages, the base year
figures are always 100 percent,
and percentage changes from
the base year can be determined.
Vertical Analysis
Whenusingverticalanalysis,
the analyst calculates
each item on a single financial
statement as a percentage of a
total. The term vertical analysis
applies because each year's
figures are listed vertically on a
financial statement. The total
used by the analyst on the
income statement is net sales
revenue, while on the balance
sheet it is total assets. This
approach to financial statement
analysis, also known as com-
ponent percentages, produces
common-sizefinancialstatements.
Common-sizebalancesheets and
income statements can be more
easily compared, whether
across the years for a single
company or across different
companies.
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4. 50
Unit 4: Financial analysis
Ratio Analysis
Ratio analysis enables the
analyst to compare items
on a single financial statement
or to examine the relationships
between items on two financial
statements. After calculating
ratios for each year's financial
data,theanalystcanthenexamine
trends for the company across
years. Since ratios adjust for
size, using this analytical tool
facilitates intercompany as well
as intracompany comparisons.
Ratios are often classified
using the following terms:
profitability ratios (also known
as operating ratios), liquidity
ratios, and solvency ratios.
Profitability ratios are gauge
of the company's operating
success for a given period
of time. Liquidity ratios are
measures of the short-term
ability of the company to pay its
debts when they come due and
to meet unexpected needs for
cash. Solvency ratios indicate
the ability of the company to
meet its long-term obligations
on a continuing basis and thus
to survive over a long period of
time. In judging how well on
a company is doing, analysts
typically compare a company's
ratios to industry statistics as well
as to its own past performance.
Financial statement analysis,
when used carefully, can pro-
duce meaningful insights about
a company's financial informa-
tion and its prospects for the
future. However, the analyst
must be aware of certain
important considerations about
financial statements and the use
of these analytical tools. For
example, the dollar amounts for
many types of assets and other
financial statement items are
usually based on historical costs
andthusdonotreflectreplacement
costs or inflationary adjustments.
Furthermore,financialstatements
contain estimates of numerous
items, such as warranty expenses
and uncollectible customer
balances. The meaning fulness
of ratios and percentages
depends on how well the
financial statement amounts
depict the company's situation.
Comparisons to industry
statistics or competitors' results
can be complicated because
companies may select different,
although equally acceptable,
methods of accounting for
inventories and other items.
Making meaningful comparisons
isalsohamperedwhenacompany
or its competitors have widely
diversified operations.
T he tools of financial
statement analysis, ratio
and percentage calculations,
are relatively easy to apply.
Understanding the content of
the financial statements, on the
other hand, is not a simple
task. Evaluating a company's
financial status, performance,
and prospects using analytical
tools requires skillful application
of the analyst's judgment.
2.1
Questions T/F
1. The purpose of analyzing the financial statements is only to make prediction
about the future performance of a company.
2. Financial analysts often specialize in assessing the performance of many dif-
ferent industries at the same time.
3. Trend analysis assesses the performance of a company in a year based on the
comparison between the figures of that year to that of the base year.
4. It is more difficult to compare common-size balance sheets and income sheets
either across the years or across different companies.
5. Liquidity ratios are measures of the company’s ability to pay its debts in a short term.
According to the text, which of the following sentences are true (T) or false (F)
Source: Text A: From Financial Statement Analysis, MARY BRADY GREENAWALT, http://www.answers.com/
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5. 51
Unit 4: Financial analysis
Answer the following questions with your own words, based on the information
in the text
1. What is the importance of financial statement analysis?
……………...................................................................................................…..
2. What is the purpose of analyzing financial statements?
……………...................................................................................................…..
3. What do the financial analysts do?
……………...................................................................................................…..
4. How can financial analysts get useful information to make financial statements?
……………...................................................................................................…..
5. Why is it called Horizontal Analysis?
……………...................................................................................................…..
6. What is the character of ratio analysis?
……………...................................................................................................…..
7. In ratio analysis, how can analysts judge on the performance of a company?
……………...................................................................................................…..
Text B: Read the text and do exercise 2.3 and, 2.4. The suggested time for
reading the text and completing the exercises is 30 minutes
FINANCIAL RATIO ANALYSIS
Financial ratio analysis is the calculation and comparison of ratios which are derived
from the information in a company's financial statements. The level and historical trends
of these ratios can be used to make inferences about a company's financial condition, its
operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces
of information from a company's financial statements.
For example, the "gross margin" is the gross profit from
operations divided by the total sales or revenues of a
company, expressed in percentage terms. In isolation, a
financial ratio is a useless piece of information. In context,
however, a financial ratio can give a financial analyst an
excellent picture of a company's situation and the trends
that are developing.
Aratio gains utility by comparison to other data and standards. Taking our example, a gross
profit margin for a company of 25% is meaningless by itself. If we know that this
company's competitors have profit margins of 10%, we know that it is more profitable than
its industry peers which are quite favourable. If we also know that the historical trend is upwards,
for example has been increasing steadily for the last few years, this would also be a favourable
sign that management is implementing effective business policies and strategies.
2.2
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6. Financial ratio analysis groups the ratios into categories that tell us about different facets of
a company's finances and operations. An overview of some of the categories of ratios is
given below.
• Leverage Ratios which show the extent that debt is used in a company's capital structure.
• Liquidity Ratios which give a picture of a company's short term financial situation or
solvency.
• Operational Ratios which use turnover measures to show how efficient a company is in
its operations and use of assets.
• Profitability Ratios which use margin analysis and show the return on sales and capital
employed.
• Solvency Ratios which give a picture of a company's ability to generate cash flow and pay
it financial obligations.
It is imperative to note the importance of the proper
context for ratio analysis. Like computer programming,
financial ratio is governed by the GIGO law of "Garbage
In...Garbage Out!" A cross industry comparison of the
leverage of stable utility companies and cyclical mining
companies would be worse than useless. Examining a
cyclical company's profitability ratios over less than a full
commodity or business cycle would fail to give an accurate
long-term measure of profitability. Using historical data independent of fundamental changes
in a company's situation or prospects would predict very little about future trends. For
example, the historical ratios of a company that has undergone a merger or had a substantive
change in its technology or market position would tell very little about the prospects for this
company.
Credit analysts, those interpreting the financial ratios from the prospects of a lender,
focus on the "downside" risk since they gain none of the upside from an improvement in
operations. They pay great attention to liquidity and leverage ratios to ascertain a company's
financial risk. Equity analysts look more to the operational and profitability ratios, to
determine the future profits that will accrue to the shareholder.
Although financial ratio analysis is well-developed and the actual ratios are well-known,
practicing financial analysts often develop their own measures for particular industries
and even individual companies. Analysts will often differ drastically in their conclusions
from the same ratio analysis.
Source: From Financial Ratio Analysis, http://www.finpipe.com/equity/finratan.htm
Answer the following questions by choosing the best choice
1. What does the phrase “in isolation” mean?
a. in particular b. individually c.in general
2. What does the phrase “in context” mean?
a. in combination b. in general c. in all
52
Unit 4: Financial analysis
2.3
v1.0
7. 3. What can be inferred from the example of the gross profit margin?
a. the ratios are especially useful by comparison to others
b. the ratios themselves can show a company’s financial performance
c. there’s no need to look at the historical trend when analyzing the ratios
4. What does the word “itself” in the sentence: “Taking our example, a gross profit margin
for a company of 25% is meaningless by itself” refer to?
a. a company b. a gross profit margin c. 25%
5. What’s the INCORRECT statement?
a. Historical data and fundamental changes should be used independently.
b. Credit analysts pay attention to liquidity and leverage ratios most of all.
c. Equity analysts are interested in the operational and profitability ratios.
Fill in the blanks with the words given below
Ratio Analysis (1) _________ the business owner/manager to spot trends in a business and
to (2) _______ its performance and condition with the (3) _________ performance of similar
businesses in the same (4) _________. To do this, compare your ratios with the average of
businesses (5) _________ to yours and compare your own ratios for several (6) _________
years, watching especially for any unfavorable (7) _________ that may be starting. Ratio
analysis may provide the all-important early warning (8) _________ that allow you to solve
your business (9) _________ before your business is destroyed by (10) _________.
Listening 1
Listen to a lecture about the financial ratio analysis and answer the following questions
1. What does ratio analysis provide?
……....................................................................……….
2. How is horizontal analysis used?
……....................................................................……….
3. What about vertical analysis?
……....................................................................……….
4. What does “it” in this sentence: “It indicates the existing relationship between sales and
each income statement account” refer to?
a. the horizontal analysis b. the vertical analysis c. the structure of the firm.
5. What are the two types of comparison in financial ratio analysis?
……....................................................................……….
6. What will the firm’s financial analyst do after completing the financial statement analysis?
……....................................................................……….
53
Unit 4: Financial analysis
2.4
3.1
average compare enables indications industry
problems similar successive them trends
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8. 54
Unit 4: Financial analysis
Listening 2
Listen to the lecture again and fill in the blanks
Industry comparison. The ratios of a firm are compared with those of (1) _______ firms or
with industry (2) ________ or norms to (3) _________ how the company is faring relative
to its (4) _________. Industry average ratios are (5) _________ from a number of (6)
_______, including: (a) Dun & Bradstreet. Dun & Bradstreet computes 14 ratios for each of
125 (7) _________________. They are published in Dun's Review and Key Business
Ratios. (b) Robert Morris Associates. This association of bank loan officers________(8)
_________ Annual Statement Studies. Sixteen ratios (9) __________ for more than 300 lines
of business, as well as a (10) ___________distribution of items on the (11) ____________
and (12) _____________________ (common size financial statements).
Trend analysis. A firm's present ratio is compared with its (13) ______ and expected (14)
_____ ratios to determine whether the company's (15) ____________________ is improving
or deteriorating over time.
After completing the financial statement analysis, the firm's financial analyst will consult with
management to discuss plans and prospects, any problem areas identified in the analysis,
and possible solutions.
Match the terms or expressions in column A with their definitions in column B.
The suggested time to do this exercise is 5 minutes
4.1
2.3
Column A Column B
1. The current ratio (or working capital) measures
liquidity – i.e. having enough cash to meet
short-term obligations. It shows if a business
can pay its most urgent debts.
A Sales volume
__________________________
Number (or wages) of employees
2. A company’s profit margin or return on sales
is the percentage difference between sales
income and the cost of sales.
B (long-term) loan capital
__________________________
Shareholders’ equity or net assets
3. Productivity shows the amount of work or
sales per employee.
C Current assets
_____________
Current liabilities
4. Earnings per share relates the company’s
profits to the number of ordinary shares it
has issued.
D Distributable profit
_______________
Number of shares
5. A company’s debt/ equity ratio compares the
amount of debt to the firm’s own capital.
E Pre-tax profit
_____________
Owners’ equity
6. Return on equity shows profit compared to
shareholders’ capital.
F Pre-tax profit
___________
Sales
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9. 55
Unit 4: Financial analysis
Choose the best alternative to complete each sentence. The suggested time to do
this exercise is 10 minutes
1. A company needs to raise a lot of money, it may ……….. shares.
a. put up b. issue c. supply d. purchase
2. Pension ……….. play an important role in the stock market.
a. companies b. trusts c. societies d. persuaded
3. As an ordinary shareholder, you are ……….. to vote at the meeting.
a. entitled b. titled c. nominated d. persuaded
4. The share ……….., which is made up of a cross-section of shares, reflects the general
activity of the market.
a. indication b. index c. measure d. indicator
5. A ……....….. is someone who buys shares, expecting the market to rise.
a. bear b. bull c. dog d. stag
6. A ……....….. is a speculator who expects share prices to fall.
a. bear b. bull c. dog d. stag
7. A ……..….. is a person who buys new issues of shares hoping to sell them quickly at
a profit.
a. bear b. bull c. dog d. stag
8. I’ve put part of the money into an instant ……….. account.
a. access b. excess c. exit d. entrance
9. Bonds issued by the government are often known as ………..
a. gelts b. guilt’s c. gilts d. debits
10. What kind of ……….. can I expect on my investment?
a. reward b. prize c. surplus d. return
11. You should have as diversified a ……….. of shares as possible.
a. case b. file c. portfolio d. folder
12. In real ……….. the $1,000 you invested would be worth $5,000 today.
a. words b. facts c. factors d. terms
13. The higher the risk you ……….. , the more money you could make.
a. take b. do c. make d. invest
14. The market has been extremely ……….. over the past few years.
a. volatile b. wavering c. shocking d. moving
4.2
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10. 56
Unit 4: Financial analysis
Based on the information in the two texts above, answer the following questions
in your own words
1. What’s financial statement analysis?
……...................................................……………..
2. What’s the purpose of analyzing financial statements?
……...................................................……………..
3. How many types of financial statement analysis? What are they?
……...................................................……………..
4. Describe each type of financial statement analysis?
……...................................................……………..
5. What is financial ratio analysis?
……...................................................……………..
6. Give some examples of financial ratios and explain them.
……...................................................……………..
Discussion – Work in pairs or groups and discuss the following questions
1. Which particular skills and abilities among those below do you think a financial executive
needs?
Can you name any other skills or characteristics important for a financial executive?
2. Do you think you possess the necessary skills?
3. If you have yet to choose a career, do you think it could be a financial executive? Why or
Why not?
5.1
5.2
Essential skills Technical skills
team work skill
language skills
problem solving skill
communication skills
……………………….
knowledge about finance
data analyzing skill
maths
…………………………….
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11. 57
Writing a classification essay
1. What is a classification essay?
In a classification essay, a writer organizes, or sorts, things into categories.
2. Three steps to effective classification:
Step 1: Sort things into useful categories.
Step 2: Make sure all the categories follow a single organizing principle.
Step 3: Give examples that fit into each category.
3. Finding categories
This is a key step in writing a classification essay. To classify, or sort, things in a logical
way, find the categories to put them into. For example, say you need to sort the stack of
papers on your desk. Before you would put them in random piles, you would decide what
useful categories might be: papers that can be thrown away; papers that need immediate
action; papers to read; papers to pass on to other coworkers; or papers to file.
4. Thesis statement of a classification essay
The thesis statement usually includes the topic and how it is classified. Sometimes the
categories are named.
(topic)...(how classified)...(category) (category) (category)
Ex: Tourists in Hawaii can enjoy three water sports: snorkeling, surfing, and sailing.
5. How to write an effective classification essay
A. Determine the categories. Be thorough; don't leave out a critical category. For example,
if you say water sports of Hawaii include snorkeling and sailing, but leave out surfing,
your essay would be incomplete because surfing is Hawaii's most famous water sports.
On the other hand, don't include too many categories, which will blur your
classification. For example, if your topic is sports shoes, and your organizing principle
is activity, you wouldn't include high heels with running and bowling shoes.
B. Classify by a single principle. Once you have categories, make sure that they fit into the same
organizing principle. The organizing principle is how you sort the groups. Do not allow a
different principle to pop up unexpectedly. For example, if your unifying principle is "tourist-
oriented" water sports, don't use another unifying principle, such as "native water sports,"
which would have different categories: pearl diving, outrigger, or canoe racing.
C. Support equally each category with examples. In general, you should write the same
quantity, i.e., give the same number of examples, for each category. The most
important category, usually reserved for last, might require more elaboration.
6. Common classification transitions
• The first kind, the second kind, the third kind
• The first type, the second type, the third type
• The first group, the second group, the third group
Writing practice
How many types of financial analysis do you know? What are their characteristics?
Use the knowledge you have learned from this lesson and additional resources
to write an essay to answer this question. The suggested time for completing the
exercise is 45 minutes
6.1
Unit 4: Financial analysis
6.3
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12. English terms Vietnamese equivalents
B
- Base year
- Business cycle
C
- Credit analyst
D
- Debt security
F
- Financial instrument
- Financial statement analysis
G
- Gross margin
- Gross profit
H
- Horizontal analysis
L
- Liquidity
- Liquidity ratio
N
- Net sales revenue
O
- Operational ratio
P
- Profitability ratio
R
- Ratio analysis
S
- Solvency
- Solvency ratio
T
- Trend analysis
V
- Vertical analysis
- Năm căn bản/ chuẩn/ gốc
- Chu kỳ kinh doanh
- Người/Chuyên viên phân tích tín dụng
- Chứng khoán nợ
- Công cụ tài chính (như chứng khoán, cổ phần, tiền…)
- Phân tích báo cáo tài chính
- Mức lãi gộp/ biên lãi gộp (bán hàng)
- Lợi nhuận gộp/ lãi mộc
- Phân tích theo chiều ngang
- Mức quay vòng vốn, khả năng thanh toán, tính lỏng
- Tỷ suất thanh toán, tỷ suất lưu động
- Doanh thu ròng
- Tỷ suất kinh doanh
- Tỷ suất (khả năng) sinh lợi
- Phân tích hệ số/ tỷ lệ
- Khả năng trả nợ
- Tỷ suất khả năng thanh toán
- Phân tích xu hướng
- Phân tích theo chiều dọc
58
Unit 4: Financial analysis
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13. REVISION A
CONTENTS
Finance and Companies
Read the summary below and decide whether each of the following is assets or
liabilities and of what kind? Which three are not assets?
A. Assets
An asset is something that has value, or the power to earn money. These include:
• current assets : money in the bank, investments that can
easily be turned into money, money that customers owe,
stocks of goods that are going to be sold.
• fixed assets: equipment, machinery, buildings and land.
• intangible assets: things which you cannot see. For example,
goodwill: a company’s good reputation with existing
customers, and brands (see unit 22): established brands have
the power to earn money.
If a company is sold as a going concern, it has value as a
profit-making operation, or one that could make a profit.
B. Liabilities
Liabilities are company’s debts to supplier, lenders, the tax
authorities, etc. Debts that have to be paid within a year are
current liabilities, and those payable in more than a year are
long-term liabilities, for example bank loans.
1. Vans which a delivery company owns and uses to deliver
goods.
2. Vans for sale in a showroom.
3. A showroom owned by a company that sells vans.
4. A showroom rented by a company that sells cars.
5. A sum of money that a company has to pay its supplier in the next six months.
Revision A
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UNIT OBJECTIVES - MỤC TIÊU
• Review the topics introduced in Unit 1, Unit 2, Unit 3 and Unit 4 through reading and
vocabulary exercises.
Ôn tập các chủ đề đã học ở bài 1, bài 2, bài 3 và bài 4 thông qua các bài đọc và từ vựng.
1
1.1
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14. 6. Money which customers owe, that will definitely be paid in the next 60 days.
7. Money which a bankrupt customer owes, that will certainly never be paid.
8. The client list of a successful training company, all of which are successful businesses.
9. A five year loan from a commercial bank.
10. The client list of a training company, with names of clients that have all gone bankrupt.
Match the words or expressions in the column A with their definition in column B
Revision A
60
1.2
Column A Column B
1 Articles of Co-partnership (n) A The contract telling the terms, conditions and
purposes of a corporation.
2 Articles of Incorporation (n) B Separate unit for ownership or legal purpose
3 Bankrupt (adj) C Unable to pay one’s debts and legally releases
from the liability.
4 Board of Directors D A group of persons elected by stockholders to
run a corporation.
5 Dividend (n) E The contract telling the terms and conditions
of a partnership
6 Entity (n) F Business owned by two or more individuals
7 Expertise (n) G A share of the profits of a corporation which is
given to the stockholders.
8 Income tax (n) H Special knowledge or ability
9 Partnership (n) I One-owner business
10 Sole Proprietorship (n) J A tax which is based on the amount of money a
person or company receives for labor , services,
or products, and which cannot be added to the
price of the labor , services or products.
11 Turnover (n) K Sales revenue minus the cost of sales, before
deductions for administration expenses, interest
charges, etc.
12 Net profit L Sales revenue minus the cost of making
and selling the goods and deductions for
administration expenses, interest charges, etc
13 Gross profit M The total amount of money a company
receives from selling goods or services.
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15. Decide which of the alternatives (A-H) each speaker is talking about. Write the
letter of your answer in the box at the end of the sentence. There are some
alternatives that you don’t have to use.
A. indebtedness B equity C share capital D bond
E. leverage F gross profit G venture capitalist H collateral
Accountancy
Choose a suitble word or phrase in the list to fill in each blank below
Hi, I’m Fiona and I’m an (1)………….. I work in Edinburgh for one big accountancy firms.
We look at the financial records or (2)…………. of a lot of companies. We work with the
accountants of those companies, and the people who work under them:( 3) …………... I like
my profession (4) …………...
Sometimes we act as (5)………… : specialist outside accountants who audit a company’s
accounts, that is, we check them at the end of the particular period to see if they give a true
and (6)…………. (an accurate and complete picture). An audit can take several days, even
for a fairly small company.
When a company’s results are presented in a way that makes them look better than they
really are, even if it follows the rules, it may be accused of creative accounting or
(7)………….. Of course, I never do this!
Revision A
61
1.3
2
1. “We had to find a lender who was prepared to finance an
exciting new company.”
2. “Our lending to companies takes the from of conditional loans
or debentures.”
3. “If you do not keep up with the repayments, we may sell your
home to recover our money”.
4. “The company is highly geared so I wouldn’t invest in it.”
5. “We owe our supplier $12,000 and we have a loan of $8,000 so
the total is about $20,000.”
auditors fair view
accounts accountancy
accountant window dressingthe
bookkeepers
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16. Financial statement and analysis
Match the explanation in column A with its words in column B
Choose the most suitable answers for the following questions
1. The money raised from several international banks will help __________ the airline's move
to a new airport.
a. finance b. price c. subsidise d. compensate
2. The car company is going to ________ $220m in its production plan next year in order to
double output.
a. invest b. fund c. deposit d. advance
Revision A
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3
3.2
3.1
Column A Column B
1 A formal description of income and costs for a time
period that has finished
A Balance sheet
2 A formal description of a company’s financial position
at a specified moment
B Capital expenditure
3 Items of value which are not easily changed into
cash but which the business needs
C Cash budget
4 Money made by the company, less all costs, but
before tax has been paid
D Current assets
5 The person who is responsible for the financial side of
running a business
E Dividends
6 Individuals who invest their money in a company
hope to regularly receive these
F Finance director
7 A plan of cash income and cash spending for a specific
period of time
G Financial advisor
8 Cash items, or items that can easily be changed into
cash for the present financial year
H Fixed assets
9 Major spending on large items necessary for the
business, such as property or equipment
I Pre-tax profit
10 Someone who advised people on how to manage their
financial affairs
J Profit and loss report
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17. 3. The company was unable to pay its debts and was therefore declared ________.
a. bankrupt b. written off c. uneconomic d. indebted
4. The bank has agreed a/an ____ of $1m to finance the purchase of the new building.
a. allowance b. loan c. accommodation d. advance
5. Last year they made a big profit from ________ of their new product range.
a. lending b. purchases c. sales d. taxes
6. At the end of a difficult year, the company are predicting pre-tax __________ of $5.7m
compared with $9.8m last year.
a. benefits b. profits c. gains d. winnings
7. Goodfood Ltd. recorded sales last year of about $1.7b and shareholders are expecting to
receive a high ____________ on their shares.
a. dividend b. payout c. margin d. interest
8. The shares that we bought in one of the new dotcom companies are expected to
__________ over the next two years.
a. increase in value b. increase in number
c. decrease in value d. decrease in number
9. The directors' key role is to reduce costs, increase sales and thereby ______ profits.
a. maximize b. lead to c. overcome d. win
10. A good financial management system enables you to ________ important big picture and
daily financial objectives.
a. foresee b. withdraw c. accomplish d. practise
Financial Results
Choose a suitable word or phrase in the list to fill in each blank below.
“A firm reports its performance in a particular
period in its results. Results for a particular year are
shown in the company’s (1)……........ . This contains,
among other things, (2)……………..
In theory, if a company makes more money than it
spends, it makes a profit. If not, it makes a
(3)……………. But it’s possible for a company to
show a profit for a particular period
because of the way it presents its activities under the
(4)……………or accounting rules of one country, and a loss under the rules of another. My
firm operates in many countries and we are very aware of this!
Revision A
63
a profit and loss account bottom line
in the red accounting standard
gross profit exceptional profit
red ink pre-tax loss
annual report loss
4
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18. A pre-tax profit or a (5) …………… is one before tax is calculated. An (6) ………….or loss
is for something that is not normally repeated, for example the sale of a subsidiary company
or the costs of restructuring. A company’s (7) ……………is before charges like these are
taken away; it net profit is afterwards. The final figure for profit or loss is what people call
informally the (8)…………….. . This is what they really worry about!
If the company is making a loss, commentators may say that it is (9)………… They may also
use expressions with (10)…………. , saying, for example that a company is bleeding red ink
or hemorrhaging red ink”.
Revision A
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