Section 4 explains how to compute, analyze, and interpret common financial ratios. What is Analysis and Interpretation of Financial Statements? endobj the three objectives of analysis and interpretation of financial statements are : Progress, Position and Prospects. Efficiency 8. 1 0 obj This process of reviewing the financial statements allows for better economic decision making. Horizontal 3. 4 0 obj The investment was accounted for as an associate in NS’s consolidated financial statements. Financial analysis is not an exact science for business owners. The 3 Ps, i.e. endobj <> IV. 2 0 obj <>>> Methods of Financial Statement Analysis: There are two key methods for analyzing financial statements. Analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statement data so that a forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities, both current as well as long term, and profitability of sound dividend policy. With this method of analysis of financial statements, we will look up and down the income statement (hence, “vertical” analysis) to see how every line item compares to revenue, as a percentage. endobj A brief explanation of the tools or techniques of financial statement analysis presented below. <>/ExtGState<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/Annots[ 17 0 R 18 0 R 19 0 R 20 0 R 21 0 R 22 0 R] /MediaBox[ 0 0 516 728.52] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> C Recognition in the income statement over its estimated useful life. Academia.edu is a platform for academics to share research papers. Whereas management uses the analysis to help in making operating, investing, and financing decisions, investors and creditors analyze financial statements to decide whether to invest in, or loan money to, a company. x��[ݓ۶����Hu| �f�c;M&�yp��;Ik����]��ww��D�l2�IX ���}�K��7_�{��Qz���m�����c{â��7y��"��4M2e�Zʈ����no�����{�6�R̐z�����Y�x�~�S��E9OR�4���?�ޤ8L\��i���͇8�?���;z����w�gVĝ�ep��T����a,��͝�+�[ď�,��#>F�P ���i#�!���U �����C�3�*MT����oo�9C*3�\1�"M���*��$g�bD��2�jͪ��)�������r�����h��Sq�)�D�F�1Wx ��S�'B�kZşr�?�L�dW2)�a�gW|���L/������6w,-�a��� �@��uS�kc�e� �v��ӮL[������zj��5TtA�7w����Ӄ�ߢm*d�� K��D����gl�b 2. ANALYSIS TOOLS HORIZONTAL (TREND) ANALYSIS evaluates a series of financial statement data over a period of time. This publication helps you prepare financial statements for a bank or similar financial institution in accordance with . Analysis & interpretation is an analytical mechanism/method in which already reported financial numbers (non financial information) are used to form opinions as to the entity’s past and future performance and position. In the field of business, accounting and finance textbooks are replete with ratios. 2�!�H��G��X�[��U���0����#��h|e���=���e�v�gLb�� The term ‘analysis’ means the simplification of financial data by methodical classification of the data given in the financial statements… Financial statement analysis embraces the methods used in assessing and interpreting the result of past performance and current financial position as they relate to particular factors of interest in investment decisions. Both NS and TP have an accounting year end of 31 October. The preparation of financial statement is required in order to achieve the objectives of the firm as a whole. Globally, publicly listed companies are required by law to file their financial statements with … Growth 5. <> Financial Statement Analysis is a method of reviewing and analyzing a company’s accounting reports (financial statements) in order to gauge its past, present or projected future performance. financial statement analysis plays the same role in the decision-making process. VERTICAL ANALYSIS expresses each item in a financial statement as a percent of a base amount RATIO ANALYSIS expresses the relationship among selected items of financial statement … �H�n�����S�L��\�(�!�܇U���;:=-��+XR��S��Ș�F=l�|���6��D_���Q1I%s���TTOy����G��ϙ���jگ��s�����IJ��C�v ��"&�i�*���ԍc��˵*�P3�7d�ag=�ſ`s��a��@6����Ѭ��n�����z"��܌D��cBCsXH������C�_]���E�y�S�c�k8����q����Df�Y̊$��5�>" "���]�6G\-3���vI)yZ�#����$E���,�b��r�@���m���4\��I���+u���j�w�{�i;tV�4O���Ũ��Q'@ Xu���m#� �� ���hu�Nj�!�a�H��̷_��,�$_/I;�nz�v�������`��m�h7e�4���7�4u��7Ό_V8������� ���u��Ҵ��,�bO���C��U:�2���vz�=�f��sq�&g�(��Z0���^P�Z�~Oh[%�I�N���P�P�Om7� y'�ϴ5�3�'�6����y|$m��S�6<0�Rw�oH��L�HL��"���{lM���6��ށ(�Q�Gat�1��Â�Ip��Gt�v�E))�jM�Яp4�8�\2��i�W$7jA���r�������R���L�67Fz��\�j��-r���ļ?q�a�lk�\L�G��l����{8D����P[>�(�P��p�W$\�Og2����e�Q?U��-���l��.��RB��Y���Rׄ.�ji �1[^�ߵ@mu���`����E���IJ�(��af)�Bg��0OAv}�U�Iy?Z�#���ʩP.�����FC2 Profitability 6. IFRS. For different users, in terms of the scale of its implementation, the analysis of financial statements depends on … 1. 4 0 obj (2 marks) 1.4 On 1 March 2004, NS acquired 30% of the shares of TP. All these can be obtained from company’s annual reports. . #����괇�g�s��.�nO���eZ���SД1�K�_����k��U���Rq�~*o��R?,���.P��AY���E�ކ3m��am3�g�s4�{T�yV&Asv,�L��M*R�2������� �EDZz��"0�2e>R�’�$-�GyJ��.�3��-8��r�n�$=�yJK-z�m��dE�2��h"����%��D���� f�aH@Z�3�J� work for financial statements and the place of financial analysis techniques within the framework. It illustrates one possible format for financial statements, based on a fictitious banking group involved in a range of general banking activities; the bank is not a first-time adopter of IFRS (see ‘Technical guide’). Ratio analysis is a commonly used analytical tool for evaluating the performance of an organization. The first method is the use of horizontal and vertical analysis. 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