ANALYSIS OF FINANCIAL STATEMENTS

OBJECTIVES OF THE LECTURE

A GOOD UNDERSTANDING OF WHAT IS

FINANCIAL STATEMENT ANALYSIS

NEED AND PURPOSE OF ANALYSIS

FINANCIAL REPORTING SYSTEM , STANDARD SETTING AND REGULATORY BODIES

FINANCIAL STATEMENTS,PURPOSE, TYPES

OTHER SOURCES OF FINANCIAL DATA

AUDIT, TYPES OF AUDIT REPORT

WHAT IS FINANCIAL STATEMENT ANALYSIS

BUSINESS ANALYSISPROCESS OF EVALUATING A

COMPANY’S ECONOMIC PROSPECTS AND RISKS FOR THE PURPOSE OF

MAKING

INVESTMENT

EXTENSION OF CREDIT

EARNINGS

RESTRUCTURING

DEBT OR EQUITY

SHORT OR LONG TERM LOANS

PREDICTIONS

MERGERS, ACQUISITION, DIVERSITIES

BUSINESS DECISION

BUSINESS ANALYSIS

ANALYSING

BUSINESS ENVIRONMENT

FINANCIA POISTION AND PERFORMANCE

BUSINESS

ACTIVITIES PERFORMED FOR EARNING PROFITS

ENVIRONMENT

ASPECTS OR SURROUNDINGS OF BUSINESS

INTERNAL EXTERNAL

5 MsSOCIAL,LEGAL

ECONOMICAL,POLITICAL

CONTROLLABLE UN CONTROLLABLE

FINANCIAL STATEMENT ANALYSIS

INTEGRAL AND IMPORTANT PART OF BUSINESS ANALYSIS THAT APPLIES ANALYTICAL TOOLS AND TECHNIQUES, TO

USEFUL IN BUSINESS ANALYSIS. 

FINANCIAL STATEMENTS AND RELATED DATA

TO DERIVE ESTIMATES

AND INFERENCE,

CONT

FINANCIAL STATEMENT ANALYSIS

ANALYSING THE INFORMATION PROVIDED IN THE

FINANCIAL STATEMENTSTO

ASSESS THE ORGANISATION

PROVIDE INFORMATION ABOUT THE ORGANISATION

PRESENT CONDITION

PAST PERFORMANCE

FUTURE PERFORMANCE

SOLVENCY

EARNINGS IN TERMS OF POWER, PERSISTENCE, QUALITY

AND GROWTH

WHY THERE IS A NEED FINANCIAL STATEMENT ANALYSIS

SURVIVALPROFTABLITY

BETTER INFORMATION ABOUT SUCH KEY FACTORS FOR DECISION MAKING AND ULTIMATE BUSINESS SURVIVAL

ANALYSIS PROVIDE OWNERS AND OTHER PARTIES

PURPOSE OF FINANCIAL STATEMENT ANALYSIS

TO USE FINANCIAL STATEMENTS TO EVALUATE AN ORGANISATION’S

FINANCIAL PERFORMANCE

FINANCIAL POSITION.

INTRACOMPANY BASIS (WITHIN THE COMPANY ITSELF)

INTERCOMPANY BASIS (BETWEEN COMPANIES)

TO HAVE A MEANS OF COMPARATIVE ANALYSIS ACROSS TIME IN TERMS OF:

INDUSTRY AVERAGES (AGAINST THAT PARTICULAR INDUSTRY’S AVERAGES)

EFFECTIVE FINANCIAL STATEMENT ANALYSIS

TO PERFORM EFFCETIVE FINANCIAL STATEMENT ANALYSIS

AWARENESS OF

ORGANIZATIONFACTORS

NATURE OF INDUSTRY

ECONOMIC CONDITION

S

BUSINESS STRATEGY

ORGANIZATIONOBJECIVES

ANNUAL REPORTS

BUSINESS REVIEWS

FINANCIAL STATEMENTS

THE PRIMARY SOURCE OF INFORMATION FOR FINANCIAL ANALYSIS.

QUALITY OF FINANCIAL ANALYSIS DEPENDS UPON THE RELIABILITY OF FINANCIAL STATEMENTS

FINANCIAL STATEMENT

S

FINANCIAL STATEMENTS

STANDARDS

OTHER SOURCES OF FINANCIAL

DATA

FINANCIAL STATEMENT

S

STANDARDS

OTHER SOURCES OF FINANCIAL

DATA

PROVIDE INFORMATION ABOUT THE FINANCIAL POSITION, PERFORMANCE,

BALANCE SHEET

INCOME STATEMENT

STATEMENT OF CHANGES IN

OWNERS ‘EQUITY

NOTES TO THE FINANCIAL

STATEMENTS

CASH FLOW STATEMENT

STATEMENT OF FINANCIAL POSITION

COMPREHENSIVE INCOME STATEMENT

INCREASE OR DECREASE IN NET

ASSTS

EXPLANATORY INFORMATION ABOUT ITEMS PRESENTED IN OTHER

COMPONENTS OF THE FINANCIAL STATEMENTS, ACCOUNTING POLICIES

FLOW OF CASH

FINANCIAL STATEMENT

S

STANDARDS

OTHER SOURCES OF FINANCIAL DATA

NEEDFINANCIAL REPORTING REQUIRES POLICY

CHOICES AND ESTIMATES. THESE CHOICES AND ESTIMATES REQUIRE JUDGMENT, WHICH CAN

VARY FROM ONE PREPARER TO THE NEXT

BUSINESS LANGUAGE

FASB

IASB/IASC

GLOBALIZATION

GAAP

IFRS

CONVERGANCE

FINANCIAL STATEMENT

S

STANDARDS

OTHER SOURCES OF FINANCIAL

DATA

MD & A OR FINANCIAL REVIEW

•Commitments for capital expenditures, the purpose of such commitments, and expected sources of funding•Anticipated changes in the mix and cost of financing resources

•Events causing material changes in cost/revenue relationships (e.g. future price increase)

•Unusual or infrequent transactions that affect income from continuing operations

AUDIT REPORT

IS DEFINED AS INDEPENDENT EXAMINATION OF BOOKS OF ACCOUNTS AND RECORDS OF AN ENTITY WHETHER PROFIT ORIENTED OR NOT IRRESPECT OF ITS LEGAL SIZE OR FORM,

WITH AN OBJECTIVE TO GIVE AN OPINION ABOUT THE FAIRNESS OF FINANCIAL STATEMENTS, WHETHER OR NOT

THEY REFLECT TRUE AND FAIR VIEW OF COMPANY’S FINANCIAL POSITION AND PERFORMANCE

NEED

IT IS COMPULSORY FOR LIMITED COMPANIES TO GET THEIR ACCOUNTS AUDITED BY

CHARTERED ACCOUNTANTS UNDER COMPANIES’ ORDINANCE 1984, BANKING

COMPANIES’ ORDINANCE 1962, INSURANCE ACT 1938, AND COOPERATIVE SOCIETIES

RULES 1927.

TYPES OF AUDIT REPORT

QUALIFIED

UNQUALIFIED