Accounting
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ACCOUNTING. FINANCIAL REPORT ANALYSIS. THE AIM:.

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ACCOUNTING

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Accounting

ACCOUNTING

FINANCIAL REPORT ANALYSIS


The aim

THE AIM:

After conducting the financial report, the company should know how well and how effective, efficient company’s performance in certain period of time. Moreover, the decision of the stockholders will be more accurate if it is based on the financial report analysis.

It is done by analyzing the financial report. Some financial ratios are counted as base of financial report analysis.


Financial report analysis ratios

FINANCIAL REPORT ANALYSIS RATIOS:

  • Liquidity/Current Ratio

  • Solvability/Debt Equity Ratio

  • Rentability Ratios:

    • Return On Assets (ROA)

    • Return On Equity (ROE)

      The result must be compared with the average ratio of other companies in the industry.


Liquidity current ratio

Liquidity/Current Ratio

  • Liquidity/current ratio is conducted to know how well the company can fulfill their short-term debt.

  • It is calculated by comparing the current assets with the short-term debt multiplied by 100%.

    Current Assets x 100%

    Short-term debt

    The higher the result, the better company’s performance will be. The company can guarantee that they will fulfill their short-term debt.


Solvability debt equity ratio

Solvability/Debt Equity Ratio

  • Solvability/Debt Equity Ratio is conducted to know how well the company can fulfill their all their debt, even the company is going to bankrupt.

  • It is calculated by comparing the total debts with the total assets multiplied by 100%.

    Total Debts x 100%

    Total Assets

    The smaller the result, the better company’s performance will be. The company can guarantee that they will fulfill all their debt.


Rentability ratio

Rentability Ratio

  • Rentability Ratio is conducted to know how well the company’s performance to produce the profit sales.

  • Rentability ratio has two kinds of ratio:

    • Return on Assets (ROA). It is calculated by comparing the profit sales with the total assets multiplied by 100%.

      Profit Sales x 100%

      Total Assets

    • Return on Equity (ROE). It is calculated by comparing the profit sales with the total equity multiplied by 100%.

      Profit Sales x 100%

      Total Equity

      The higher the result, the better company’s performance to produce profit sales.


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