Accountancy · Ch 8 — Analysis of Financial Statements
Summary
Summary
Summary
Major Parts of an Annual Report
An annual report contains the basic financial statements, namely the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement. In addition to these statements, it also carries the management's discussion of the corporate performance during the year under review, along with the outlook for the firm's future prospects.
Tools of Financial Analysis
The commonly used tools of financial analysis are:
- Comparative statements
- Common size statements
- Trend analysis
- Ratio analysis
- Cash flow analysis
The first three are studied in this chapter; ratio analysis is dealt with in detail in Chapter 5 and cash flow analysis in Chapter 6.
Comparative Statement
A comparative statement shows the changes in all items of the financial statements, both in absolute amounts and in percentage terms, over a period of time for a single firm or between two firms.