Lecture 1 AFS PDF

BBA 2k20
LECTURE OUTLINES
• What is Financial Statement Analysis?
• Purpose of Financial Analysis
• Kinds of Financial Analysis
• Who are interested in Financial Statement
• Effective financial statement Analysis
• Tools & techniques of Analysis of Financial
Statement
COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20
ANALYSIS OF FINANCIAL STATEMENT
Financial statement analysis (or financial
analysis) is the process of reviewing and
analyzing a company's financial statements
to make better economic decisions.
It is primarily done to make better
financial decisions and devise plans for
the company to earn more income in the
future.
WHAT IS FINANCIAL STATEMENT ANALYSIS?
The term “Financial Statement Analysis” refers to
the systematic numerical representation of the
relationship of one financial aspect with the
other.
The activity of financial statement analysis is
undertaken to analyze the company on the basis
of its, profitability, solvency, operational
efficiency, and growth prospects.
Financial statement analysis involves
analysing the information provided in the
financial statements to:
Provide information about the organisation’s:
• Past performance
• Present condition
• Future performance

• Two kinds of financial statements:
1. Profit & Loss Accounts

2.Balance Sheet

PURPOE
OF FINANCIAL STATEMENT ANALYSIS
Let us learn about its purpose or need of undertaking such an
activity. Following is the list of purpose of financial statement
analysis:
 To measure the financial standing of the business
 To evaluate profitability (earning capacity of the business)
 To make comparison with the firm and with other firms.
 To find out the business capability of paying interest,
dividend, etc.
 To judge the performance of management
 To measure the firm’s short-term and long-term solvency
USES / IMPORTANCE OF FINANCIAL
STATEMENT ANALYSIS
Financial Statement Analysis helps both internal and
external users by providing them with better information
about key factors of the business.
There are various uses of financial statement analysis for

different users like investor, creditors, management,
government, and so on.

Users interested in Financial statement
Management
Owners

Creditors
Investors

Employees Customers

Government

EFFECTIVE
FINANCIAL STATEMENT ANALYSIS
• To perform an effective financial statement analysis,
you need to be aware of the organization's:
– business strategy
– objectives
– annual report and other documents like articles
about the organisation in newspapers and
business reviews

TOOLS OF FINANCIAL STATEMENT
ANALYSIS
The various tools of financial statement analysis help in
evaluating and interpreting the company’s financial
statements for planning, investment and performance.
The most commonly used tools for financial analysis

are:

TOOLS OF FINANCIAL STATEMENT
ANALYSIS
1. Comparative Statements
2. Common-Size Statements
3. Trend Ratios/TrendAnalysis
4. Statement of changes in working capital
5. Funds Flow & Cash flowAnalysis
6. Ratio Analysis

1. COMPARATIVE FINANCIAL
STATEMENTS
Comparative financial statements are the statement

of financial position at different periods.
Financial Statements of two years are compared and

differences in absolute as well as percentage terms are
calculated.

COMPARATIVE STATEMENTS CAN BE
PREPARED IN TWO FORMS
Comparative
Statements
Comparative
Comparative
Income
Balance Sheet
Statements

Comparative Income Statements
A comparative income statement shows
increase or decrease in absolute figures of
the incomes & expenses. It shows the
operating results for a number of accounting
periods so that the changes in absolute data
in terms of money and percentage from one
period to other may be studied and
analyzed.
Comparative Balance Sheet
Comparative balance sheet is a balance

sheet which provides financial figures of
Assets, Liability and equity for the “two or
more period of the same company” or “two
or more than two company of same
industry” at the same page format so that
this can be easily understandable and easy
to analysis.
COMPARATIVE FINANCIAL STATEMENTS
1. Prepare Comparative Income Statement
Profit & Loss Account

2017 2018 2017 2018
To Cost of Goods Sold 6000 7500 8000 10,000
Operating Expenses:
Admn Expenses 200 200 By Net
selling Expenses 300 400 Sales
Net Profit 1500 1900
8000 10,000 8000 10,000

Comparative income statement for the year
ended 31st December 2017 & 2018
2017 2018 Increase/Decrease Percentage
Absolute
Net Sales 8000 10,000 2000 25%
(-) Cost of Goods Sold 6000 7500 1500 25%
Gross Profit 2000 2500 500 25%
(-) Operating Expenses:

Admn Expenses 200 200
selling Expenses 300 400 100 33.33%
Operating Profit 1500 1900 400 26.67%

THANK YOU
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BBA 2k20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

1. Profit & Loss Accounts

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

There are various uses of financial statement analysis for

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

The most commonly used tools for financial analysis

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

Comparative financial statements are the statement

Financial Statements of two years are compared and

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

Comparative balance sheet is a balance

Profit & Loss Account

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

(-) Cost of Goods Sold 6000 7500 1500 25%

Gross Profit 2000 2500 500 25%

(-) Operating Expenses:

selling Expenses 300 400 100 33.33%

Operating Profit 1500 1900 400 26.67%

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

COURSE INSTRUCTOR: SHAGUFTA SALEEM SHAIKH BATCH: BBA-2K20

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