Importance Of Financial Performance Analysis

Financial performance analysis is the process of identifying the financial strengths weaknesses of the firm by properly establishing the relationship between the item of balance sheet and profit and loss account. It also helps in short-term and long term forecasting and growth can be identified with the help of financial performance analysis. The directory meaning of analysis is to resolve or separate a thing in to its element or components parts for tracing their relation to the things as whole and to each other. The analysis of financial statement is a process of evaluating the relationship between the components parts of financial statement to obtain a better understanding of the firms position and performance. This

Financial statements are prepared for the purpose of presenting a periodical review or report on the progress by the management and it deals with 1, the result achieved during the period under review and 2,the position of investment in the purpose t in the business concern. Thus the term has now widely been used to represent two statement of accounts, which are being prepared at the end of a particular fixed period

A number schedules are also being attached to supplement all the main data and information contained in the financial statement. These schedules are consider to be a part and parcel of the above: statements for the purpose of their analysis and interpretation. Thus it seems quite desirable to describe the nature and objective of each of the financial statement.

The balance sheet show the financial position of the firm at a given point of time. It provides a snapshot and may be regarded as a static picture. Balance sheet is a summary of a firm’s financial position on a given date that shows total assets = total liabilities + owner’s equity.

The income statement referred to in India as the profit and loss statement reflects the performance of the firm over a period of time. Income statement, is a summary of a firms revenues and expenses over a specified period ending with net income are loss

Working capital analysis

2. Financial structure analysis

3. Activity analyses

4. Profitability analysis.

Tools and techniques of financial performance analysis For measurement of financial performance of a business the financial statement are analyzed. An analysis of financial performance can be possible through the use of one or more tools and techniques of financial analysis. These tool and technique are classified in three main categories:

a. Accounting technique

Accounting technique are also known as financial techniques. Various accounting techniques can be used for the purpose of financial analysis. The measurement of profitability is as the essential as the earning of profit itself for a business firm. The profitability of a business firm can be evaluated or measured from number of perspectives, and there are various quantitative as well as qualitative methods that that can be employed for this purpose.

b. Statistical technique

Various statistical technique are used to provide a more accurate and scientific measurement from profitability analysis. Numerical analysis does involve the use of various statistical techniques. Some of the important statistical techniques which are suitable for the financial analysis of stock exchanges are listed below and out of them the techniques which have been used in the present study are