It helps in assessing the future growth potential of the firm. 5. Analysis of financial statements discloses the liquidity, solvency and profitability of the business. 6. Financial statement analysis is useful as it provides meaningful information to the shareholders in taking decisions regarding the holding of the shares.
1.1 INTRODUCTION TO FINANCIAL ANALYSIS Financial analysis converts raw information of financial statements in useful financial information. Only after financial analysis, we can use financial statements for decision making. This financial information is useful for planning, evaluating and making financial decisions. Further, financial analysis helps in assessing the past performance along with the current financial position, in order to make predictions about the future performance of the company. The process of evaluating business, projects, budget and other finance related entities to determine their suitability for investment.
To study the investment pattern of investors while constructing portfolio. 4. To assess the extent to which behaviour influences the financial preference of individual investors. 5. To analyze whether there is any difference in behaviour of investor while investing in individual assets or making a portfolio.
Conversely, portfolio analysis is conducted at market level by evaluating the performance of a portfolio of stocks. Additionally, the purpose of portfolio analysis is to improve investments whereas SWOT analysis is used to enhance the performance of a business. Moreover, SWOT analysis are obtained through both quantitative and qualitative data and relies heavily on assumptions. On the other hand, portfolio analysis is strictly based on quantitative (financial and economic) data. Finally, SWOT analysis is mainly useful for generating strategic ideas for business growth and is used by most firms whereas portfolio analysis is only useful to businesses that own stock and have their own investments in other firms.
Earnings / Share Earnings per share are used to measure a company’s profitability. The earnings per share is the portion of a company’s profit allocated to each outstanding share of common stock. (Investinganswers.com, 2014) The earnings per share for Sappi have been very inconsistent over the last 5 years. This does not sit well with investors as it increases the risk of losing their investment. Investors want a consistent growth rate in order to keep their money growing over the course of time.
The figures of this type analysis are presented horizontally over a number of columns. The figures of the variously years are compared with standard or base year. A base year is a year chosen as a beginning point. It is also called ‘Dynamic Analysis’. This analysis makes it possible to focus attention on items that have changed significantly during the period under review.
It is often the quality, and growth of a company's earnings that drive its stock price. The ratio is calculated by dividing the operating profit by turnover and multiplying the quotient by 100. 11. The price/earnings ratio (P/E) is one of the most trusted investment valuation indicators. This
Helpful in Financial Forecasting And Planning Every year we calculate lots of accounting ratios. When we make trend of all these ratios, we can get useful information for our future forecasting and planning. For example, we can tell five year collection period with following way from this trend, we know that we are decreasing the days for collection money from our debtors. With this information, we can make two plans. One is effective use of money which we are getting from our debtors more fastly and second we can also check the behavior of our debtors by comparing this with sales trend.
2 Analysis Analysis involves identification of the business problem and opportunities, and assessment and validation of potential and actual solution. Business Analyst collect data and recommend feasible suggestions for improving the system functioning. This involve studying the business processes and understanding the information flow. This process gives an analyst the information needed to be successful and effective in solving the problem. 3
However, despite the advantages of ratio analysis, certain limitations will make it less meaningful. Even though it is good for evaluate the continuous past finance performance of the company, people more tend to interest in current and future performances. Ratio analysis can be misleading sometimes as the comparison of different industries and situations is not successful. Moreover, misinterpretation can be occurred as human factor and external factors are not considered in the ratio