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Financial Analysis for Executives

The document discusses financial analysis and its goals and techniques. Financial analysis assesses the viability, stability, and profitability of a business through ratios calculated from its financial statements. It helps evaluate a company's profitability, solvency, liquidity, stability, and efficiency. Common techniques for financial analysis include analyzing financial statements, comparative analysis, common size analysis, trend analysis, fund flow analysis, cash flow analysis, and ratio analysis. Financial statements like the income statement, balance sheet, statement of retained earnings, fund flow statement, and cash flow statement are prepared to periodically review a company's investments, results, and financial position.

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Tabassum Jamadar
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94 views2 pages

Financial Analysis for Executives

The document discusses financial analysis and its goals and techniques. Financial analysis assesses the viability, stability, and profitability of a business through ratios calculated from its financial statements. It helps evaluate a company's profitability, solvency, liquidity, stability, and efficiency. Common techniques for financial analysis include analyzing financial statements, comparative analysis, common size analysis, trend analysis, fund flow analysis, cash flow analysis, and ratio analysis. Financial statements like the income statement, balance sheet, statement of retained earnings, fund flow statement, and cash flow statement are prepared to periodically review a company's investments, results, and financial position.

Uploaded by

Tabassum Jamadar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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THEORETICAL BACKGROUND Introduction and Financial analysis Financial analysis refers to an assessment of viability, stability, and profitability of business,

sub-business or project. Financial analysis is helpful in accessing the financial position and profitability of the concern. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements of a company. These reports are usually presented to top management as one of their basis in making business decisions. Based on these reports, management may : Continue or discontinue its main operation or part of its business. Make of purchase certain materials in the manufacture of its products. Acquire or rent/lease certain machineries and equipments in the production of its goods. Issue stocks or negotiate for a bank loan to increase its working capital. Other decisions that allow management to make and inform selection on various alternatives in the conduct of its business.

Goals of financial analysis Financial analyst often accesses the firms: Profitability: Its ability to earn income and sustain growth in both short term and long term. A companys degree of profitability is usually based on the income statement, which reports on the companies results of operations. Solvency: The firms ability to pay its obligations to debtors and other third party in the long term. Liquidity: Its ability to maintain positive cash flow, while satisfying immediate obligations. Stability: The firms ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Accessing a companys stability requires the use of the income statement and the balance sheet, as well as other financial and non-financial indicators. Efficiency: The operational efficiency of the concern as a whole and of its various parts or departments. Techniques (Tools or methods) of financial analysis The following techniques can be used for financial analysis; Financial statements. Comparative analysis. Common size or measurement analysis.

Trend percentage analysis. Fund flow analysis. Cash flow analysis. Ratio analysis.

FINANCIAL PERFORMANCE PARAMETER AN OVERVIEW 1. Financial statement. Financial statements are prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the investment in the business and result achieved during the period under review. They reflecting a combination of recorded facts, accounting principles and personal judgments. Various financial statements are: Income statement or profit & loss account. Balance sheet. Statement of retaining earnings. Fund flow statement. Cash flow statement.

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