The document discusses financial statement analysis, defined as the evaluation of relationships among financial factors in a business. It outlines objectives such as measuring solvency and profitability, as well as the importance of the analysis for various stakeholders like management and investors. The document also addresses types, limitations, and tools associated with financial statement analysis.

1. 19MST15 – FINANCIAL AND
MANAGEMENT ACCOUNTING
M. NANDHAKUMAR
ASSISTANT PROFESSOR
ERODE SENGUNTHAR ENGINEERING COLLEGE (AUTONOMOUS)
PERUNDURAI, ERODE

2. UNIT – III FINANCIAL STATEMENT ANALYSIS
 Meaning of financial statement analysis
 Definition of financial statement analysis
 Objectives of financial statement analysis
 Nature of financial statement analysis
 Functions/Uses/Importance of financial statement analysis
 Types of financial statement analysis
 Limitations of financial statement analysis
 Tools/Techniques of financial statement analysis

3. MEANING OF FINANCIAL STATEMENT ANALYSIS
 Financial analysis is also referred as “Analysis of financial
statements”. The term “Financial Analysis”, also known as an
“Analysis and interpretation of financial statements”, refers to the
process determining financial strengths and weakness of firm.

4. DEFINITION OF FINANCIAL STATEMENT
ANALYSIS
• According to Myers, “Financial statement analysis is largely a study of
relationship among the various financial factors in a business as disclosed by
single set-of statements, and study of the trend of these factor as shown in a series
of statement”.

5. OBJECTIVE OF FINANCIAL STATEMENT ANALYSIS
 Measuring short – term solvency
 Measuring long-term solvency
 Measuring operating efficiency
 Measuring profitability
 Comparison of inter-firm position
 Forecasting, Budgeting and Deciding future line of action
 Indicating trend of achievements
 Assessing growth potential of the business

6. NATURE OF FINANCIAL STATEMENT ANALYSIS
 Based on recorded facts
 Accounting conventions
 Personal judgement

7. FUNCTIONS/USES/IMPORTANCE OF FINANCIAL
STATEMENT ANALYSIS
 For management
 For financers
 For creditors
 For investors
 For owners
 For employees

8. TYPES OF FINANCIAL STATEMENT ANALYSIS
 On the basis of information used
 External analysis
 Internal analysis
 On the basis of modes operation analysis
 Horizontal analysis
 Vertical analysis

9. LIMITATIONS OF FINANCIAL STATEMENT
ANALYSIS
 Absence of standard universally accepted terminology
 Ignoring qualitative aspects
 Misleading result in absence of absolute data
 Ignoring price level changing
 Suffering from limitations of financial statements
 Financial statements are affected by the personal ability and bias of analyst

10. TOOLS / TECHNIQUES OF FINANCIAL STATEMENT
ANALYSIS

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