FINANCIAL STATEMENT ANALYSIS

Greetings,

It's your friend @mondraye and today we will be talking about financial statement analysis.

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This is a company's formal document that details all of its financial data and experiences from the previous accounting year.

It focuses on providing facts and aiding in understanding the financial side of the business being assessed.

Financial statements are a summary of the auditing process that give both internal and external parties reliable information.

The entire body of trustworthy financial statement analysis may be broken down into two main parts, which make up this assertion. They include;

-Income statement
-Position statement

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• Income statement

It takes into account the company's viability throughout a specific period or year of bookkeeping. It is a component of how business operations are really carried out in practice.

By giving the trading/manufacturing accounts, the profit and loss account, and the profit and loss account for the year in question, it affirms to control the inflow of money in terms of gross and net profit of the firm obtained.

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• Position statement

This demonstrates the company's financial situation at the end of the accounting year. It aids in figuring out and comprehending the firm's assets and liabilities as of right now.

Through the overall assets, liabilities, and initial capital base of the business corporation, it reveals the firm's strengths and shortcomings.

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Types of financial statements

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_Pixabay

-Compiled Statement
-Reviewed Statement
-Audited Statement
-Unaudited Statement

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• Complied statement

A Certified Public Accountant has presented financial information from a corporation in the form of this statement (CPA). It excludes any discussion of the financial statement analysis.

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• Reviewed statement

An examination of the Certified Public Accountant is provided in this statement (CPA). Here, the CPA describes odd items or developments in the financial statement that are appropriately described in more detail.

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• Audited statement

This statement is created by a Certified Public Accountant (CPA), who has access to pertinent data and financial statement analysis.

This investigation includes data involving external parties, physical examination of the audited records, observations, and all financial transactions, whether direct or indirect, that can be linked to supporting registers.

The most accurate way to assess a company's financial capacity is through an audited statement of analysis. It raises performance.

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• Unaudited statement

This statement was created by internal corporate workers without a Certified Public Accountant's compilation, review, or audit (CPA).

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Techniques of financial statements

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-Comparative Financial Statement Analysis.
-Common Size Financial Statement Analysis.
-Trend Financial Statement Analysis.
-Fund Flow Financial Statement Analysis.
-Cash Flow Financial Statement Analysis.
-Ratio Financial Statement Analysis.

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_{Comparative financial statement analysis}

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This financial statement analysis was developed and revised over the course of, typically, two or more years.

This makes it easier to compare and assess the financial and operational performance of the company at different times.

Statement analysis in this area can be divided into three main accounts: comparative account, balance sheet, and profit and loss account.

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_{Common size Financial statement Analysis}

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Common denominations are used to convert the numbers calculated in the common size financial statement analysis into proportions.

The balance sheet in this case shows the total assets, and all other figures are indicated as a percentage of the sum figure. The figures are added up to 100 in the balance sheet.

This is among the least expensive methods of computing statement analysis, and it demonstrates the similarity of each asset in the standard size of 100.

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_{Trend financial statement analysis}

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By focusing its emphasis on the change in the precise line of traded items inside the income statement and balance sheet of the company, it provides a way to estimate a company's data over a particular period.

Percentage rates are used to determine whether a production line has increased or decreased as a result of market supply and demand.

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_{Fund flow financial statement analysis}

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Statement of origin, advantages, and utilization of funds is another name for this used by several businesses.

It can be defined specifically as "a description, hypothetical or reflective, detailing the source and application of cash of a firm or company.

The purpose of this statement of analysis is to identify the financial requirements and describe how they should be procured, employed effectively and efficiently, and applied.

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_{Cash flow financial statement analysis}

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This statement of analysis provides a clearer picture of how money is being raised and then used to manage the company.

The firm's style of operation, investments, and finances are summarized while also being reconciled with variations in its cash and monetary correspondence.

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Difference between fund flow financial statement and cash flow financial statement

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Fund flow	Cash flow
It displays a financial report of working capital fund movements.	It maps out the utilization of fund.
This statement's major goal is to demonstrate how the resources obtained have been scaled, distributed, and used.	It focuses on the monetary change between go ledgers.
It shows the result of financial presentation	It identifies the causes of declining cash balances in spite of rising profit and vice versa.
There is no opening or ending cash balance in this statement of analysis.	There is an opening and closing cash balance in this statement of analysis.
There is a corresponding entry in the books of accounts whenever working capital increases or decreases.	Here, the business just keeps track of cash payments and bank receipts for cash payments.

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Ratio of financial statement analysis

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The phrase "ratio" refers to the relationship between two mathematically represented figures.

The statement analysis' common data reported in financial terms are meaningless to the business's owners.

The simple division of one number by another does not give these numbers much meaning.

• Ratios are conveyed in terms of:

It can be expressed by by dividing two numbers by two. Rates and frequency: It is expressed as the frequency with which one number is greater than another. Percentage: In this case, the relationship between the data is shown using a basis of 100.

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Uses of financial statement analysis

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-In financial statement analysis, it is employed.

-It can be applied to foresee or decide.

-It presents accounting data as being simple to understand.

-It can be used to understand how business operates.

-whether in a favorable or unfavorable manner.

-Standard ideals can be established with it.

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Limitations of Financial statement analysis

-If it's calculated using inaccurate information, it will produce wrong results since you just get the results of your input.

-When incorrect information is changed, it does not automatically rectify itself.

-This analysis is no longer applicable when prices change.

-It cannot be utilized to contrast other businesses that use various types of statement analysis

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CONCLUSION

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A effective financial statement analysis might be hampered by companies providing false information on their statement of accounts to show they are succeeding when in reality they are not.