financial statement

• Time series analysis is a specific way of analyzing data collected over an interval of time rather than at a single point of time.
• Financial statement analysis is the procedure of analysing an enterprise’s financial statements for making decisions for the purposes of investment, credit, and risk management.
• The term ‘financial analysis’ comprises both ‘analysis and interpretation’.
• The most frequently used tools of financial analysis are comparative statements, common size statements, cash flow analysis, and ratio analysis.
• Comparative statements are the statements depicting the financial position and profitability of an enterprise for the distinct time frame in a comparative form to give a picture about the position of 2 or more periods.
• Comparative figures signify the direction and trend of financial position and operating outcomes.
• This type of analysis is also referred to as ‘horizontal analysis’.
• Common size statements are the statements which signify the association of distinct items of a financial statement with a generally known item by depicting each item as a % of that common item.
• Such statements allow an analyst to compare the financing and operating attributes of 2 enterprises of distinct sizes in a similar industry.
• This analysis is also referred to as ‘Vertical analysis’.
• Cash flow analysis refers to the analysis of the actual movement of cash into and out of an establishment.
• The flow of cash into the trading concern is called cash inflow or positive cash flow and the flow of cash out of the enterprise is known as negative cash flow or cash outflow.
• The difference between the outflow and inflow of cash is the net cash flow.
• Ratio analysis characterizes the vital association which exists between several items of a B/S (balance sheet) and a statement of P&L of an enterprise.
• Accounting ratios compute the comparative importance of the single items of the position and income statements.
• It is feasible to evaluate the liquidity, solvency, efficiency, and profitability of an enterprise via the method of ratio analysis.
• Trend analysis is a technique of studying the operational results and financial position over a series of years.
• The trend percentage is the percentage relationship, in which each item of different years bears to the same item in the base year.
• Inter Firm Comparison (Cross Sectional Analysis) When the financial data of a firm is compared with other firms (competitors) or industry averages for the same time period, it is called Inter Firm Comparison or Cross Sectional Analysis.
• Horizontal analysis is performed horizontally across time periods, while vertical analysis is performed vertically inside of a column.
• Trend analysis is the observation of percentage changes over time in the selected data.
• Both horizontal and vertical analysis can be used by internal and external stakeholders.
• Horizontal analysis represents changes over years or periods, while vertical analysis represents amounts as percentages of a base figure.
• These outsiders may be creditors, shareholders, investors or the credit agencies.
• Trend analysis is important because it may point to basic changes in the nature of the business.
• Both forms of analysis can help you analyze various financial statements, including balance sheets and income statements.
• Horizontal analysis is also called ‘Dynamic Analysis’ as it is based on the data from year to year, while vertical analysis focuses on data of one year only and hence it is also ‘called Static Analysis’.
• Horizontal analysis usually examines many reporting periods, while vertical analysis typically focuses on one reporting period.
• External Analysis: The analysis which is conducted by an outsider without having any access to the basic accounting record of the firm, it is called external analysis of financial statements.
• Intra Firm Comparison (Time Series Analysis) When the financial data of the same firm is compared for the different time periods, it is called Intra Firm Comparison or Time Series Analysis.
• Both forms of analysis can help you pick out trends and patterns in financial data and develop strategies.
• Cross-sectional analysis looks at data collected at a single point of time, rather than over a period of time.
• Internal Analysis: The analysis conducted by persons who have access to the internal accounting records of a business firm is known as internal analysis.