How to do 'Financial Statement Analysis'?
The primary objective or purpose of the financial statement analysis is to provide information about the financial position, strength, and performance of a company, loss, and profits which are useful for shareholders, managers, prospective investors.
Financial institution (Banks), customers, employees and many other groups or individual persons. Financial statements, in simple words, are the records of the economic status of an organization.
The knowledge presented in the financial statements makes it more convenient for the shareholders or owners of companies to make lending and investing decisions.
Types Of Financial Statements:
Balance Sheet is a kind of financial statement that provides the statements regarding the company’s assets, shareholders’ equity, and liabilities. A balance sheet stores the financial information of a company from date to date. The balance sheet is also a convenient method of storing and obtaining the money matters of an organization.
Income statement provides the data to a company with its profits and measures that could be taken to provide a company with more profits; that is, where to utilize wisely that profit income and expenses that could be cut off as they are reducing the profitability of a certain company. It gives the details regarding the earnings per share.
Statements of cash flow are a kind of financial statement that provides the information about the income and outpours of the company during the reporting period.
Cash flow statements have the relationship with the balance sheet that is; it tells the user about changes in balance sheet and income that affect cash and its equivalents.
Statements of change in equity are the statements that provide information about the changes in equity that is issuance or purchase of shares, profits, and losses, etc.
The information provided in these documents are not provided when the financial statements are issued internally because it is not much use for the managers, so the statement is usually kept at the back end.
Users And Usefulness Of Financial Statements:
As already mentioned in the very first paragraph, financial statements are one of the key elements that play a vital and effective role in an organization/company’s income or loss.
It is useful for investors to keep the knowledge of the company’s income and either the stock of the company is worth investing In and if the company faces any financial crises the investors can return their investments.
Managers of the company make use of financial statements to manage the issues and expenses of the company. Banks need financial statements to decide, either to grant a loan or credit to a business or not.
Employees need to know if their organization can pay them monthly or if there is a chance of pay rise. The employees may also have more interest in working for a company because they know about the pay rises and good income of a company.
Government organizations need financial statements to manage the economy of the country. They need to know the rise or downfall of the economy so they can manage the country affairs wisely.
The tax authorities also use financial statements for imposing the amount of tax payable by different companies or citizens. Customers need financial statements to know if the company could supply the goods or anything they require for the desired period they require.
In short, we can say that the financial statement is a need of time to run a successful business or a company.
As a judgment, we can say that financial statements are the most important element to get to know about the economy of a company. It is helpful in making lending and investing decisions.
Working according to the financial statements, that is managing the accounts of a company according to the financial statements results in fruitful income for the company.