Objectives of comparative financial statements
The major part of financial statement analysis is mainly focused on the comparative analysis.
The comparative analysis classified into four different analyses viz
First we will discuss the comparative Balance sheet.The first and foremost important step is to have the following information and should take preparatory steps
From the following information, Prepare comparative Balance sheet of X Ltd.
The first step we have to segregate the available information into two different categories viz Assets and Liabilities
N. C = No change in the position during the two years
From the above table, the following are basic inferences
The next one in the comparative financial statement analysis is that Income statement analysis
Comparative (Income) financial statement analysis: This analysis is being carried out in between the income statements of the various accounting durations of the firm, with other firms in the industry and with the industrial average.
This will facilitate the firm to know about the stature of itself regarding the financial performance. It facilitates to understand about the changes pertaining to various financial data which closely relevantly connected with the financial performance
The ultimate purpose of the comparative (Income) financial statement analysis is as follows
The first and foremost important step is to have the following information and should take preparatory steps
Prepare the comparative income statement from the following:
From the above table, the following inferences can be had: Financial Statement Analysis
From the following information, prepare a comparative income statement:
For this problem, the inferences could be enlisted according to the comparative statement analysis on Profit & Loss Accounts of two different year viz 2001 and 2002.
The next important tool of financial statement analysis is a common size statement analysis which known as predominant tool in intra firm analysis in studying the share of each component.
The components are translated into percentage for analysis and interpretations. For profit and loss account, Net sales is considered as a base for the computation of a share of each financial factor available.
For Balance sheet, total volume of assets and liabilities are taken into consideration for the computation of a share of each financial factor available under the heading of assets and liabilities.
Prepare the common size statement analysis for the firm ABC ltd
The above illustration highlights the share of every component in the balance sheet out of the total volume of assets and liabilities.
This will certainly facilitate the firm to easily understand not only the share of every component but also facilitates to have a meaningful and relevant comparison with various time horizons.
From the following table, prepare the common size statement analysis:
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