Objectives of the firms or companies financial statements analysis
Author interpretation: Any companies or firms financial statements analysis is very importance. The major benefit is that the investors get enough idea to decide about the investments of their funds in the specific company. Financial statements analysis can help the government agencies to analyze the taxation due to the company. Moreover, company can analyze its own performance over the period of time through financial statements analysis. So I would like to interpretation my view on the explanation about "what are financial statements & meaning of financial statement analysis" before going into the my main article "objectives of the companies financial statements analysis"
Because I believe that the people who are related with accounts, finance, auditing and also the business owners will understand overall about the importance of "financial statements analysis" I believe that this articles will help the business owners and investors for development also help them to decide to new investment,
What are financial statements?
A written report which quantitatively describes the financial condition of a firm or company, financial statements report includes the balance sheet, income statement, statement of changes in net worth and statement of cash flow.
The first step in raising a financial management system is the creation of financial statements. To manage proactively, you should plan to generate financial statements on a monthly basis. Your financial statements should include an income statement, a balance sheet and a cash-flow statement
In more The three basic financial statements are the (I) balance sheet, which shows firm's assets, liabilities, and net worth on a stated date;(II) income statement which shows how the net income of the firm is arrived at over a stated period, and (III) cash flow statement, which shows the inflows and outflows of cash caused by the firm's or companies activities during a stated period.
Meaning of financial statement analysis
Financial statement analysis is an evaluative method used by interested parties such as investors, creditors, and management to evaluate the past, current, and projected conditions and performance of the firm or company. Ratio analysis is the most common form of financial analysis. It provides relative measures of the firm's conditions and performance. By this means ahead an understanding of the financial health of the company and enabling more effective decision making. Financial statements record financial data; however, this information must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers and other interested parties.
Introduction: Any firms or companies financial statements analysis is importance. Also it is necessary to specify the objectives of the analysis. The objectives will very depending on the perspective of the financial statements user and the specifies questions that are addressed by the analysis of financial statements data,
Objectives of analysis:
The objective of financial statements is to afford in sequence about the reporting entity's financial piece and financial situation that is useful to a extensive range of users for assessing the stewardship of the entity's management and for making economic decisions" There are various techniques or procedures that are utilizes in analyzing financial statements, like proportional statements, timetable of changes in working capital, universal size percentages, funds analysis, movement analysis, and ratios analysis.
For creditors: Financial workouts are complicated predominantly if there are a quantity of creditors involved. If one or two creditors don't agree to the conditions of anything conformity is reached, the calisthenics will fall during and then the firm or company will have to folder for impoverishment. An exercise depends completely on whether or not the creditors are eager to work with the small business and each other. If the small business satisfies the objectives of the creditors, then the workout will be successful. If not, then it will not be.
May be the most vital creditor, relation to the success of a workout, is the secured creditor, which is frequently the bank. The unsecured creditors typically include the suppliers and vendors of the business. They may agree to take a segment of what is owed to them simply because they would rather get some of what you owe them quite than risk receiving none of it if you go out of business.
For an investor: One of the most important reasons for business breakdown is under-capitalization. Many businesses cost less than $50,000 to establish, but many cost further. You must have sufficient capital to start your business. If you don't, you will be one of the many small businesses that fail. You can turn to friends and family for initial money for your business. Otherwise, you can try to get bank loans or you can try to elevate equity financing from archangel investors or venture capitalists.
A financial statement or financial report is an official record of the financial actions of a business, one, or other entity. For a business venture, all the applicable financial in sequence, presented in a prearranged manner and in a form easy to comprehend, are called the financial statements. They typically comprise four basic financial statements, accompanied by an administration discussion and analysis:
01.Â Balance sheet: as well referred to as statement of financial situation or circumstance, information on a company's assets, liabilities, and possession equity at a given point in time.
02. Income statement: in addition referred to as Profit and Loss statement news on a company's income, expenses, and profits over a stage of time. Profit & Loss account give information on the operation of the project. These include sale and the different expenses incurred through the dispensation shape.
03. Statement of retained earnings: make clear the revise in a company's retained earnings over the reporting period.
04. Statement of cash flows: intelligence on a company's cash flow actions, predominantly its in service, investing and financing activities.
Financial statement analysis is an evaluative process of formative the past, current and expected presentation of a company. Numerous systems are frequently used as part of financial statement analysis including horizontal analysis, which balances two or more years of financial data in both dollar and percentage form; erect analysis, where each class of accounts on the balance sheet is exposed as a percentage of the total account; and ratio analysis, which computed arithmetical relationships between statistics.
At a quick look (Culture of analysis Objectives the financial statements)
(I)Prepare and understand financial statements in proportional and common-size form.
(II)Compute and read financial ratios that would be most functional to a common stock holder.
(III)Compute and construe financial ratios that would be most positive to a short-term creditor
(IV)Compute and deduce financial ratios that would be most construct.
Conclusion: Financial statements provide insight into the company's status and lead to the development of company's policies and strategies for the future. However that management also has responsibility for preparing the financial statements. The analysis should be alert to the potential for management to influence the outcome of financial statements reporting in order to appeal to creditors, investors, and other users.
It is important that any analysis of financial statements include a careful reading of the notes to the financial statements and it may be helpful to supplement the analysis with other materials in the annual report and with other sources of information apart from the annual report