Financial management is key to the survival of any business. From maintaining a healthy working capital to determining how to manage assets, liabilities, and proper financial flow, there are many facets to financial management, each key to the smooth functioning of a business. Myriad techniques, tools, and instruments are involved in a typical business financial management process. And financial statement analysis is one of the primary methods employed.

Financial statements are comprehensive written records detailing business performance and financial history within a certain period. Developing, presenting, and analyzing financial statements are the basis of a financial audit and are rudimentary for students and professionals in the domain. Financial statement analysis & auditing are extensive and intricate processes & many novice learners, and even numerous skilled ones, seek finance assignment help for their analysis and auditing assignments.

But what exactly is a financial statement? What are its different types, and what are the steps, tools, & instruments involved? This article explores.

What are Financial Statements? Definition & Different Types

Financial statements are written records that contain detailed information about all the different economic activities, current assets & liabilities, net worth, income, profits, and everything else. They reflect the current financial condition of a company and their acute analysis can help decision-makers devise the best possible strategies to remedy or elevate existing financial health.

Every economic entity generally develops four types of financial statements for businesses, projects, and organizations. They are:

· Balance Sheets

Balance sheets reflect the entire net worth of a company and provide an overview of current assets, current liabilities, and a glimpse of shareholders’ total equity during a particular period.

· Income or Profit & Loss Statements

Income statements offer a glimpse of the revenue-generating processes, the total amount of revenue generated, the total expenses, and a firm’s net profit or income.

· Cash Flow Statements

Cash flow statements look into a company’s liquidity, including the amount of working capital it has and how well it can fund operating expenses and pay off current debt obligations. Cash flow statements generally categorize cash flows into operating, investing, and financing activities.

Cash flow statements relate and reconcile information in the income statement with the balance sheet.

· Statements of Changes to Equity Records

This statement dwells on how a company retains its profits and distributes them to shareholders. It details a business’s starting equity, net income, and dividends.

As may be intuitive, financial analyses and audits involve auditors synthesizing information from all four statements to develop acute, accurate, and insightful reports. The significance of financial statement analysis may be quite evident to the reader as the reports are designed to identify the financial strengths & weaknesses of a firm.

The crucial nature of statement analysis is why companies carry out multiple auditing processes by internal teams and various external parties, such as registered auditing firms, investors, lenders, labor unions, etc. And while the nature and the processes involved may differ across different audits, the ultimate goal is to get a clear picture of a firm’s financial condition.

Are you working on an assignment on company auditing & reporting and need some urgent aid? Then, look for reliable and reputed professional finance assignment help online for expert assistance.

Now, it’s time to look at the tools & techniques employed in any analysis process.

The Tools and Processes in Financial Statement Analysis

A basic financial statement analysis process requires scrutiny of all the information within all four significant financial statements. Auditors employ Generally Accepted Accounting Principles and other tools and techniques to find a company’s liquidity, the major assets, the most demanding liabilities, the sources & outlets related to cash flow, the status of equity, and the like.

Accounting and auditing professionals implement GAAP and analytical tools through specific analysis approaches, namely, vertical and horizontal analysis. Both of these approaches are related but differ in the way the analyst compares & interprets the information from a statement.

• Vertical analysis involves going through a particular column in a financial statement. This approach helps readers understand how one item in a statement relates to another.

Vertical analysis is called Common Size analysis and uncovers insights by looking into the relationships of different items & entities in a financial statement with a common element. Percentages can then be measured with corresponding percentages of previous reports or financial periods.

• Horizontal analysis refers to reading financial data corresponding to previous reports. Also known as trend analysis, it helps one understand how things have changed and identify trends in specific financial metrics over time.

Comparative Analysis is a category of horizontal analysis as it, too, looks into the profitability and financial position of a company across different periods. Balance sheets and profit & loss statements undergo extensive comparative analysis; however, the accounting and analysis principles used to analyze information across different periods must be the same.

The nuances and underlying steps involved in financial statement analysis are many and minutely complex. If you are struggling with complex scenarios in your financial statement analysis assignments, look for online finance assignment help from a reputed finance assignment help service without delay.

Ratio Analysis is yet another process of analyzing information in a financial report. It looks into the different ratios that can be determined from the values of the reported metrics, allowing auditors to gain crucial insights into the financial health of a firm.

Some significant ratios analyzed are:

1. Profitability Ratios showcase how profitable a company is and include gross profit ratio, equity returns, break-even point, returns on net assets, etc.
2. Liquidity Ratios offer insights regarding how liquid a company is, including cash coverage ratio, current ratio, liquidity index, etc.
3. Leverage Ratios show how credit-dependent a firm’s operations are and include metrics such as debt-to-equity ratio, debt service coverage ratio, fixed charge coverage, etc.
4. Activity Ratios look at how well a company uses available resources and generally include different turnover rates.

Once the ratios for the current period are calculated, comparing them with preceding ratios can help the financial condition of a business and how it’s shaping up.

We wrap up this write-up with two illustrations of comparative or horizontal and common size or vertical financial statement analysis.

Two Simple Examples

• Develop the following profit and loss statement of ABC Pvt. Ltd. Into a comparatively audited statement.

Solution:

As per the process, the comparative analysis evaluates financial data horizontally and compares it across different time periods. It then calculates the absolute and relative percentage of increase or decrease across the different periods.

For the financial years 2016 & 2017, here’s the horizontally or comparatively analyzed profit and loss statement of ABC Pvt. Ltd.

• Prepare a common size balance sheet of XYZ Ltd. from the following information.

Solution: Common size analysis investigates notable changes and identifies trends by calculating every item in a financial statement as a percentage of some absolute or aggregate value or revenue from the activity it is a part of.

The common size analysis of XYZ Ltd.’s balance sheet produces the following:

And that’s all the space we have for today. Hope this was an informative piece for one and all.

Financial statement analysis is a core aspect of almost all branches of financial studies, especially financial management, accounting, and chartered auditing. You will require supplementary guidance and help in your finance assignments, and if you are looking for quality aid urgently, don’t go for just any service online.

Do proper research and then seek professional finance assignment help from genuine, reputed finance assignment help services online.

All the best!

Author-Bio: Glen Wilson is a certified public accountant and a professor from one of the most prominent public universities in the United States of America. He is also a part-time writer at AllEssayWriter.com, a leading finance assignment help service.

 A Student-Friendly Guide To Financial Statement Analysis

Financial management is key to the survival of any business. From maintaining a healthy working capital to determining how to manage assets, liabilities, and proper financial flow, there are many facets to financial management, each key to the smooth functioning of a business. Myriad techniques, tools, and instruments are involved in a typical business financial management process. And financial statement analysis is one of the primary methods employed.

Financial statements are comprehensive written records detailing business performance and financial history within a certain period. Developing, presenting, and analyzing financial statements are the basis of a financial audit and are rudimentary for students and professionals in the domain. Financial statement analysis & auditing are extensive and intricate processes & many novice learners, and even numerous skilled ones, seek finance assignment help for their analysis and auditing assignments.

But what exactly is a financial statement? What are its different types, and what are the steps, tools, & instruments involved? This article explores.

What are Financial Statements? Definition & Different Types

Financial statements are written records that contain detailed information about all the different economic activities, current assets & liabilities, net worth, income, profits, and everything else. They reflect the current financial condition of a company and their acute analysis can help decision-makers devise the best possible strategies to remedy or elevate existing financial health.

Every economic entity generally develops four types of financial statements for businesses, projects, and organizations. They are:

· Balance Sheets

Balance sheets reflect the entire net worth of a company and provide an overview of current assets, current liabilities, and a glimpse of shareholders’ total equity during a particular period.

· Income or Profit & Loss Statements

Income statements offer a glimpse of the revenue-generating processes, the total amount of revenue generated, the total expenses, and a firm’s net profit or income.

· Cash Flow Statements

Cash flow statements look into a company’s liquidity, including the amount of working capital it has and how well it can fund operating expenses and pay off current debt obligations. Cash flow statements generally categorize cash flows into operating, investing, and financing activities.

Cash flow statements relate and reconcile information in the income statement with the balance sheet.

· Statements of Changes to Equity Records

This statement dwells on how a company retains its profits and distributes them to shareholders. It details a business’s starting equity, net income, and dividends.

As may be intuitive, financial analyses and audits involve auditors synthesizing information from all four statements to develop acute, accurate, and insightful reports. The significance of financial statement analysis may be quite evident to the reader as the reports are designed to identify the financial strengths & weaknesses of a firm.

The crucial nature of statement analysis is why companies carry out multiple auditing processes by internal teams and various external parties, such as registered auditing firms, investors, lenders, labor unions, etc. And while the nature and the processes involved may differ across different audits, the ultimate goal is to get a clear picture of a firm’s financial condition.

Are you working on an assignment on company auditing & reporting and need some urgent aid? Then, look for reliable and reputed professional finance assignment help online for expert assistance.

Now, it’s time to look at the tools & techniques employed in any analysis process.

The Tools and Processes in Financial Statement Analysis

A basic financial statement analysis process requires scrutiny of all the information within all four significant financial statements. Auditors employ Generally Accepted Accounting Principles and other tools and techniques to find a company’s liquidity, the major assets, the most demanding liabilities, the sources & outlets related to cash flow, the status of equity, and the like.

Accounting and auditing professionals implement GAAP and analytical tools through specific analysis approaches, namely, vertical and horizontal analysis. Both of these approaches are related but differ in the way the analyst compares & interprets the information from a statement.

• Vertical analysis involves going through a particular column in a financial statement. This approach helps readers understand how one item in a statement relates to another.

Vertical analysis is called Common Size analysis and uncovers insights by looking into the relationships of different items & entities in a financial statement with a common element. Percentages can then be measured with corresponding percentages of previous reports or financial periods.

• Horizontal analysis refers to reading financial data corresponding to previous reports. Also known as trend analysis, it helps one understand how things have changed and identify trends in specific financial metrics over time.

Comparative Analysis is a category of horizontal analysis as it, too, looks into the profitability and financial position of a company across different periods. Balance sheets and profit & loss statements undergo extensive comparative analysis; however, the accounting and analysis principles used to analyze information across different periods must be the same.

The nuances and underlying steps involved in financial statement analysis are many and minutely complex. If you are struggling with complex scenarios in your financial statement analysis assignments, look for online finance assignment help from a reputed finance assignment help service without delay.

Ratio Analysis is yet another process of analyzing information in a financial report. It looks into the different ratios that can be determined from the values of the reported metrics, allowing auditors to gain crucial insights into the financial health of a firm.

Some significant ratios analyzed are:

1. Profitability Ratios showcase how profitable a company is and include gross profit ratio, equity returns, break-even point, returns on net assets, etc.
2. Liquidity Ratios offer insights regarding how liquid a company is, including cash coverage ratio, current ratio, liquidity index, etc.
3. Leverage Ratios show how credit-dependent a firm’s operations are and include metrics such as debt-to-equity ratio, debt service coverage ratio, fixed charge coverage, etc.
4. Activity Ratios look at how well a company uses available resources and generally include different turnover rates.

Once the ratios for the current period are calculated, comparing them with preceding ratios can help the financial condition of a business and how it’s shaping up.

We wrap up this write-up with two illustrations of comparative or horizontal and common size or vertical financial statement analysis.

Two Simple Examples

• Develop the following profit and loss statement of ABC Pvt. Ltd. Into a comparatively audited statement.

Solution:

As per the process, the comparative analysis evaluates financial data horizontally and compares it across different time periods. It then calculates the absolute and relative percentage of increase or decrease across the different periods.

For the financial years 2016 & 2017, here’s the horizontally or comparatively analyzed profit and loss statement of ABC Pvt. Ltd.

• Prepare a common size balance sheet of XYZ Ltd. from the following information.

Solution: Common size analysis investigates notable changes and identifies trends by calculating every item in a financial statement as a percentage of some absolute or aggregate value or revenue from the activity it is a part of.

The common size analysis of XYZ Ltd.’s balance sheet produces the following:

And that’s all the space we have for today. Hope this was an informative piece for one and all.

Financial statement analysis is a core aspect of almost all branches of financial studies, especially financial management, accounting, and chartered auditing. You will require supplementary guidance and help in your finance assignments, and if you are looking for quality aid urgently, don’t go for just any service online.

Do proper research and then seek professional finance assignment help from genuine, reputed finance assignment help services online.

All the best!

Author-Bio: Glen Wilson is a certified public accountant and a professor from one of the most prominent public universities in the United States of America. He is also a part-time writer at AllEssayWriter.com, a leading finance assignment help service.