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Financial Statement Analysis Paper

1384 Words6 Pages

One of foundation of financial planning analysis and decision making is the financial information. It’s needed to forecast the financial statements to relate and also assessitsbusiness’sgrossingcapability. Financial decision making investment and financing decision making is also required. The financial information of an enterprise is contained in the financial statements. Its usage of financial statement analysis in investment decision has been addressed by a series of authors. According to Gautam, U. S. (2005) The Financial Statement commonlydescribedby means of financial information which is related to the information to financial position of severalfirm in a case form. According to J.AOhison (1999) was defined as a written report that …show more content…

According to Meigs and Meigs (2003), the purpose of financial statement analysis is to provide information about a business unit for decision making purpose and such information need not to be limited to accounting data. White ratios and other relationships based on past performance may be helpful in predicting the future earnings performance and financial health of a company, we must be aware of the inherent limitations of such …show more content…

Budgeting it creates a budget setting out planned cash flows in and out of the business. By monitoring a cash flow budget it is possible to identify any potential crisis points where liquidity will be poor. Budgets can also be set out for income and expenditure by the business, as well as a capital budget showing major capital spending e.g. on premises, equipment etc. Second is Profit and loss analysis it involves the creation of a profit and loss budget setting out expected future profits/losses for the business. This is important in assessing the return on the business. The useful parts of profitability analysis are the gross profit margins - the gross profit of the business as a percentage of sales and the operating profit margins - operating profit as a percentage of sales. Third is Solvency analysis involves calculating the net current assets of a business as shown in the balance sheet (i.e. current assets - current liabilities). Fourth is the Return on capital employed (ROCE) this is a measure of the return made on all of the capital employed in the business in a given period of time.Where a business has shareholders it is useful to analyse returns to these shareholders in terms of returns for each £ invested in share

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