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Financial Statement Analysis 2.3

PARTIES INTERESTED IN FINANCIAL ANALYSIS

Management
Employees and Trade Unions
Shareholders or Owners or Investors

Potential Investors
Suppliers or Creditors
Bankers and Lenders

Researchers
Tax Authorities
Customers

LIMITATIONS OF FINANCIAL STATEMENT ANALYSIS

Historical Analysis
Ignores Price Level Changes

Qualitative Aspect Ignored
Suffers from the Limitations of Financial Statements

Not Free from Personal Bias

Variation in Accounting Practices
Window Dressing
Identifies Symptoms

CHAPTER SUMMARY

• Analysis of Financial Statements is a systematic process of identifying the financial strengths and
weaknesses of a firm by properly establishing relationships between the items of the Balance Sheet and
Statement of Profit & Loss.
• Tools or Techniques of Financial Statement Analysis
1. Comparative Statements
2. Common-size Statements
3. Ratio Analysis
4. Cash Flow Statement
• Types of Financial Statement Analysis
1. External Analysis
2. Internal Analysis
3. Horizontal or Dynamic Analysis
4. Vertical or Static Analysis