Skip to main content

MBA NOTES:TYPES OF FINANCIAL ANALYSIS

TYPES OF FINANCIAL ANALYSIS

Following are the various types of financial analysis.

A. On the basis of material used.

1. External Analysis
Analysis of financial statements may be carried out on the basis of published information. i.e.., information made available in the annual report of the enterprise. such analysis are usually carried out by those who do not have access to the detailed accounting records of the Co. i.e., Banks, Creditors etc.

2. Internal Analysis
Analysis may also be based on detailed information available within the Co. which is not available to the outsiders. such analysis is called internal analysis. this type of analysis id of a detailed one and is carried out on behalf of the management for the purpose of providing necessary information for decision making, such analysis emphasizes on the performance appraisal and assessing the profitability of different activities.

B. According to objectives of analysis

1. Short Term Analysis
Short term analysis is mainly concerned with the working capital analysis.in the short run, a Co. must have ample funds readily available to meet its current needs and sufficient borrowing capacity to meet the contingencies. in short term analysis the current assets and current liabilities are analysed and liquidity is determined.

2. Long Term Analysis
In the long term a Co. must earn a minimum amount sufficient to maintain a reasonable rate of return on the investment to provide for the necessary growth and development of the Co., and to meet the cost of capital.
financial planning is also desirable for the continued success of a Co. Thus in the long term analysis the stability and the earning potentiality of the C. is analysed  i.e., fixed assets, long term debt structure and the ownership interest is analysed.

C. According to the Modus Operandi of analysis

1. Horizontal Analysis
Analysis of financial statements involves making comparisons and establishing relationship among related items. such comparison or establishing of relationship may be based on financial statements of a Co.for a number of years and the financial statements of different Co's for the same year. such analysis is called horizontal analysis. it may take the following two forms.
a. comparative financial statement analysis
b. trend analysis.

2. vertical Analysis.
Analysis of financial data based on relationship among items in a single period of financial statement is called vertical analysis. from a single balance sheet or P&L A/C relationships of various items may be established.
e.g. various assets can be expressed as percentage of total assets. statements containing such analysis are also called as common size statements. The common size P&L A/C is more useful in analysing the operating results and costs during the year. It shows each element of cost as a percentage of sales. Similarly common size balance sheet show fixed assets as a percentage to total assets.

SYNOPSIS OF FINANCIAL ANALYSIS
FINANCIAL STATEMENTS / FINANCIAL REPORTS
USERS OF FINANCIAL STATEMENTS
TYPES OF FINANCIAL ANALYSIS
TOOLS OF FINANCIAL ANALYSIS (METHODS)
RATIO ANALYSIS
CLASSIFICATION OF RATIOS
LIQUIDITY RATIOS
PROFITABILITY RATIOS
LEVERAGE RATIO
EFFICIENCY RATIO




MBA NOTES
Labels:

Comments

Post a Comment

Popular posts from this blog

MANAGEMENT

MANAGEMENT Definition: A set of activities planning, organizing, staffing, leading and controlling to achieve the organizational goals. or Management is the process of designing and maintaining an environment for efficiently accomplishing selected aims. or Set of activities (planning, organization, leading,controlling) directed at an organization resources (finance, human, physical and information) to achieve the organizational goals in an effecient and effective manner is called management. Efficient: The efficient mean do work be fore the due date. Effective: To complete the work in time. eg. if we say someone to complete task in 10 days and he complete the task in 10 days no more or no less that person called effective person. Manager: A person who perform all organization activities are called manager. Management Resoureces: There are four basic management resources. Finance Human Physical Information Finance: Finance mean the assets like as C...
1 comment
Read more

TYPES OF FINANCIAL MARKETS

FINANCIAL MARKET DEFINATION: A market where securities are sold and purchased called financial market. Types of Financial Markets Primary Market: When a company issue its securities first time in the market that market is called primary market. Secondary Market: The market where issued securities are sold and purchased is called secondary market. Money Market: A market where securities who's maturity are less than or equal to one year are sold and purchased are called money market. a) T bill T bill are issued by Govt. when they need the money and Govt mostly issue T bill when thsre budget is going to budget is deficit or have. These securities maturity is less than one year and Govt. can issue in any country.Its a less risky investment. b) Commercial Paper Commercial paper are issued by companies. These types of securiteis issue mostly that company that have high credit worthiness in market and goodwill in the market. These types of investment are risky i...
2 comments
Read more