AN OVERVIEW OF FINANCIAL STATEMENT ANALYSIS. CHAPTER 1. …OBJECTIVE. Identify and discuss overview and function of financial statement analysis. Explain business analysis and its relation to financial statement analysis. Identify the relevant analysis information beyond financial statements.
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AN OVERVIEW OF FINANCIAL STATEMENT ANALYSIS
Financial Statement Analysis is a process of reviewing, analyzing, interpreting the basic financial reports using the analytical tools such as comparative and trend index analysis, common size analysis, ratio analysis or cash flow analysis. It includes the analysis of the profitability of a company (based on the net profit), worth of the company (asset own), its risk associated to debt they own (liability), capital structure (equity vs. debt own) and cash flows of the company (its sources and uses of funds). The tools used to do the analysis can be c
The objectives of financial statement analysis are to identify the strength and the weaknesses of the company. At the same time it measures the ability of the company to sustain in the business or market and be able to create wealth to the shareholders or pay principal and interest to the creditors.
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BUSINESS ANALYSIS ANALYSIS
The goal of business analysis is to improve business decisions by evaluating available information about a company’s financial situation, its management, its plan and strategies, and its business environment. Business analysis involved scanning the environment. This is done by examining the environment related to competitors, technology, regulation or changes in government policy as well as customer needs and demand. This type of analysis is called external analysis. Business analysis aids in making informed decision by helping structure the decision task through an evaluation of a company’s business environment, its strategies, and its financial position and performance.
Business analysis is the evaluation of a company’s prospects and risks for the purpose of making business decisions. These business decisions extend to equity and debt valuation, credit risk assessment, earning predictions, audit testing, etc.
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