Types of financial statement analysis pdf
Nowadays business data is changing faster than it did a some years ago.
Therefore I suggest to get constantly updated sources (cloud-based software) which permanently refresh holded information, thus youu2019ll benefit from high-quality info.
,From my standpoint, the most reliable providers of firmsu2019 financial info are Global Database and Refinitiv.
These comprehensive web-based directories offer million businesses profiles with financial statement besides their contacts, address, employeesu2019 contacts and employment history and so on.
,Source #1> RefinitivIt is the provider of financial markets data and infrastructure.
Refinitiv equips the financial community with access to an open platform that uncovers opportunity and catalyses change.
It offers information, insights, and technology of financial markets, as well as financial technology data, analytics, trading, and risk assessment tools and products.
,Customers: UnionBank, Azizi Bank, Finity-X, SberBank.
Source #2> Global DatabaseIts huge software holds millions of firmsu2019 profiles, offering a clear view of a companyu2019s net profit, turnover, liabilities, and other important financials.
u201cDue diligenceu201d feature allows to review of the companys assets, capabilities, and financial performance.
I like the search filter that permits to target companies by location, industry type, sic code, different financial statements, even keywords, etc.
Each profile includes an organizational chart, employeesu2019/competitorsu2019/stakeholdersu2019 lists, credit risk, SWOT analysis, and many more.
Data are exportable (CSV/PDF).
,The best feature its integration with popular CRM systems, marketing/sales tools, and even API.
One big plus is its simple interface, affordable price, quality, and quick customer support.
,Apart from that, Global Database supplies users with firmsu2019 C-level reps.
emails, social links, phone numbers, birth date, employment history, etc.
,Customers: KPMG, Maserati, DHL, Dupont, Iveco, Caterpillar, etc.
u2757u2757u2757For a in-depth review, itu2019s also good practice to avail of the free trial and/or demo offer.
This way, youu2019ll be able to evaluate a program more effectively.
And once youu2019ve narrowed down your list of potential solutions, then you can make that sound final decision.
3 types of financial statement analysis
Advantages and disadvantages may not be the most appropriate words here.
Iu2019m thinking more like benefits and limitations.
,Letu2019s Start with Benefits (Or Advantages)When reporting is well-constructed, the reader can get the really big picture in no time.
,Letu2019s focus just on marketing costs below for this small e-commerce concern below.
,One can quickly surmise that marketing costs are generally in the range of 7.
5% to 7.
9% of revenue over the past 3 calendar years and on a trailing 12-month basis.
,With minimal effort, the financial scribes should easily be able to crank out this snapshot for additional detail in the financial reporting allowing us to check for anomalies/hiccups in this line item.
,The financial reporting team could give us some more detail as Marketing includes 6 general ledger account numbers.
To maintain brevity, weu2019ll stop here and summarize our primary benefit (advantage) of financial statement analysis:,Itu2019s easy,Itu2019s easy to teach others,Itu2019s big-picture meaning you only need a few minutes to spot negative trends,It preps us for the important questions,Limitations (Disadvantages)Can you spot the limitations based on the above?,All financial reporting is aggregated reporting.
Take revenue for instance.
While Iu2019ve included orders and average transaction size, who were the customers? Where are they? Which campaigns sold the most units? What was the difference between repeat business and new customer sales? Or which product family had the largest drop in sales?,Disaggregating the data allows us to slice and dice these data sets simply and efficiently.
Financial reporting is not designed for such analysis.
,Referring back to the marketing cost analysis found in financial reporting, disaggregating the data and analyzing at a more granular level might look like the below:,We can only go so far with financial statement analysis.
Disaggregating the numbers where every dollar and unit includes attributes or dimensions allows us to analyze at a much more granular level.
,Financial statement analysis helps us to ask the why? questions.
The next level of detail not included in financial statements provides the answers, or should.
,Limitations to Both Types of AnalysisAs stated elsewhere in this thread, financial analysis of any kind is lagging.
Such analysis does not necessarily lead to that canary-in-the-coal-mine futuristic intelligence all of us are clamoring for.
,Judgment needs and relies on good data and information.
Good data and information demands wisdom-based judgment.
Types of financial statement Analysis ppt
I used to work as an intern in Audit and now iu2019m working in TS, iu2019ll tell you the differences (+similarities, so youu2019ll get clearer picture ).
So in term of actual works in daily basis, the differences are :,In audit youu2019ll do a lot of procedures in order to test FS accounts according to the desired assertions/objectives, such as completeness, realibility, existence, etc u2026through vouching, recalculating, tying up numbers (this one is called substantive procedures), + footing by using calculator (during reporting phase ), etc.
In TS, probably youu2019ll do the same, but youu2019ll need to explain more about the reason behind the numbers because the main goal is to explain the condition of financial performances rather than to confirm the FS numbers.
Depending on the scope of work, TSu2019s works/due diligence can take form either in limited procedures and analysis or full scope analysis ( outlining key findings, EBITDA normalization, Net Working Capital adjustment, Net debt analysis, Quality of Earning analysis, etc.
);,In TS youu2019ll also learn how to create PPT while in Audit youu2019ll only do a lot of Excel workingpapers as well as typing financial statement in MS Word document format;,Depending on the office location, the TSu2019s working hours could be higher or lower compared to audit.
However, for me, i work less compared to auditors, probably around 50u201360 hours/week in average during project.
In general, working in due diligence project could be more intense compared to Audit because the projectu2019s time frame is usually shorter;,Most of the time, we obtain our data via VDR (Virtual data room) because itu2019s cost saving, which means we donu2019t travel that much compared to Auditors who work at clientu2019s site;,The recruitment procedures for TS staff are more complex and difficult compared to the recruitment procedures of audit staff, youu2019ll work with more ambitious as well as experienced accountants who moved from audit to TS once youu2019re getting in;,TSu2019s exit ops are more specific toward due diligence type of works (boutique investment banking, PE, etc.
) while audit exit ops oftenly are financial controller, corporate accounting and TS (in other big 4 or accounting firms);,At the middle managerial level, TS managers will be salesmen as well (it is project based), while in audit, the managers are responsible to manage audit of several companies.
,At the junior level, TS associates might be exposed less to client (usually, the clients are investors) and target companies (the company that want to be purchased/invested in) because the communication most of the time are restricted to only higher level individuals.
On the other hand, at the junior level, Audit associates might have more direct opportunities to interact with client even though itu2019s only in the form of small interaction such as asking for data, for instance.
,Now, these are the similarities:,Similar to Audit, TS is a purely accounting job and it is a very specific type of work (basically its like providing special purpose of assurance/agreed upon procedures), so it is not a corporate finance, financial modelling, management, or something thatu2019s more strategic or operational type of work.
Sometimes you might get opportunity to do other types of due diligence such as HR due diligence, or operational due diligence besides the standard financial (accounting) due diligence that sound very interesting at glance, however, they are basically just another name for walkthrough test and/or test of control on the specific part of HR operation or other operationsu2019 aspects within the target company under audit procedures;,At the associate level, the salary is pretty much the same, despite of tougher barrier to entry of TS;,Both are considered as long hours jobs and there will always more works to do;,Both provide you the best opportunity to learn accounting and both are lucrative career choices.
Donu2019t worry about people who overly glorify TS (if youu2019re in Audit).
Methods of financial statement analysis
The better way of analyzing a financial statement is totally depend upon your purpose.
Stil in a generalize way there are some important points need to consider in analysis :-,First understand the domain of the industry.
One need to gather basic understanding of industrail scenario of the entity because every industry has their own set of ideal practices.
A Banking company has totally different perespective with regards to the liquidity and capital adiquacy as compared to the company belongs to real estae domain.
Understand the business of a particular industry is the first step to conduct fundamental analysis of financial statement.
,Obtain comparative details and arrange it on a spreadsheet in a summarize way.
,Calculate the following ratios :,Profit ratios(Operating profit, Cash Profit, Net Profit etc),Liquidity Ratios( Current Ratio, Quick Ratio etc),Capital Adiquacy and debt ratios(Debt equity, capital gearing, DSCR, Leverage analysis),Growth ratios(growth in sales, individual cost, profit, finance cost, net worth, debt, other current assets and liabilities, working capital etc),If you want to analyze business in depth then some Advance ratios (Yield analysis, Inventory & debtor turnover ratios, Sensitivity analysis with regards to external factors etc),Prepare valuation model through different methods of valuation (Book Value, Market Value, Earning model value etc),4.
Here the real work begins.
Now the quality of analysis is depends upon your knowlede and experience.
Understand the operating and financial performance of the entity.
Draw a detail comparative analysis over a specific period of time.
Prepare a rough future forecast considering comparative details and all the relevant external factots.
Asses the future earning potential through such projections.
,Scope of analysis are vast though depend upon the purpose.
I am sharing with you some extracts of my first analysis during my articleship days :-),Though these are very basic analysis but still you get a rough idea about it.
Messege me if need any detail info related to same.
,Hope this would help.
Importance of financial statement analysis
Vantage Point: 8 Points of View For Evaluating a Stockthis is probably best way to understand the financial statements.
,Please do give me feedback if found fruitful.
Types of financial statements
A financial statement is a statement that is mainly prepared to show the financial PERFORMANCE of an entity for a certain period of time, or to show the financial POSITION of an entity at a particular date.
They are 4 main financial statements.
,The Statement of Profit or Loss and other Comprehensive Income.
This shows the performance of an entity regarding whether it has made a profit or a loss, and how much.
,The Statement of Financial POSITION.
This shows the financial position of an entity at a particular date, usually the financial reporting date.
It shows the balances of the entitys assets, liabilities and equity.
,The Statement of Changes in Equity.
This shows the movements that have occurred, which affect the overall equity balances at the financial reporting date.
It shows items such as issue of new shares, revaluation of assets, issuance of dividends etc.
,The Statement of Cash Flows.
This shows the movement of the businessu2019 cash and cash equivalents during a financial period.