ANALYSIS OF FINANCIAL STATEMENTS

OBJECTIVES OF THE LECTURE

A GOOD UNDERSTANDING OF WHAT IS

FINANCIAL STATEMENT ANALYSIS
NEED AND PURPOSE OF ANALYSIS

FINANCIAL REPORTING SYSTEM , STANDARD SETTING AND REGULA

BODIES
FINANCIAL STATEMENTS,PURPOSE, TYPES
OTHER SOURCES OF FINANCIAL DATA
AUDIT, TYPES OF AUDIT REPORT

WHAT IS FINANCIAL STATEMENT ANALYSIS

BUSINESS ANALYSIS
BUSINESS
DECISION

PROCESS OF EVALUATING A
COMPANYS ECONOMIC PROSPECTS
AND RISKS FOR THE PURPOSE OF
MAKING

INVESTMENT

DEBT OR EQUITY

EXTENSION OF
CREDIT

SHORT OR LONG TERM LOANS

EARNINGS

PREDICTIONS

RESTRUCTURING

MERGERS, ACQUISITION, DIVERSITIES

BUSINESS ANALYSIS
ANALYSING
BUSINESS
ENVIRONMENT
BUSINES
S
ENVIRONMEN
T

FINANCIA POISTION AND

PERFORMANCE

ACTIVITIES PERFORMED FOR EARNING

PROFITS
ASPECTS OR SURROUNDINGS OF BUSINESS
INTERNAL
5 Ms

CONTROLLABLE

EXTERNAL
SOCIAL,LEGAL
ECONOMICAL,POLITIC
AL
UN
CONTROLLABLE

FINANCIAL STATEMENT
ANALYSIS

INTEGRAL AND IMPORTANT

PART OF BUSINESS ANALYSIS
THAT APPLIES ANALYTICAL
TOOLS AND TECHNIQUES, TO

FINANCIAL STATEMENTS
AND RELATED DATA

TO DERIVE
ESTIMATES
AND
INFERENCE,
USEFUL IN BUSINESS
ANALYSIS.

CONT

FINANCIAL STATEMENT
ANALYSIS
ANALYSING THE INFORMATION PROVIDED IN
THE
FINANCIAL STATEMENTS
TO
PROVIDE
INFORMATION ABOUT
THE ORGANISATION
PAST
PERFORMA
NCE
PRESENT
CONDITIO
N
FUTURE
PERFORMANC
E

ASSESS THE
ORGANISATION
EARNINGS IN TERMS OF
POWER, PERSISTENCE, QUALITY
AND GROWTH
SOLVENCY

WHY THERE IS A NEED FINANCIAL STATEMENT

ANALYSIS

PROFTABLI
TY

SURVIVAL

ANALYSIS PROVIDE OWNERS

AND OTHER PARTIES

BETTER INFORMATION ABOUT SUCH KEY FACTORS FOR

DECISION MAKING AND ULTIMATE BUSINESS SURVIVAL

PURPOSE OF FINANCIAL STATEMENT ANALYSIS

TO USE FINANCIAL
STATEMENTS TO
EVALUATE AN
ORGANISATIONS
FINANCIAL
PERFORMANCE
FINANCIAL POSITION.

TO HAVE A MEANS OF
COMPARATIVE ANALYSIS
ACROSS TIME IN TERMS
OF:
INTRACOMPANY BASIS
(WITHIN THE COMPANY
ITSELF)
INTERCOMPANY BASIS
(BETWEEN COMPANIES)
INDUSTRY AVERAGES
(AGAINST THAT
PARTICULAR INDUSTRYS
AVERAGES)

EFFECTIVE FINANCIAL STATEMENT ANALYSIS

TO PERFORM EFFCETIVE FINANCIAL STATEMENT
ANALYSIS
AWARENESS OF
ORGANIZATION
FACTORS
BUSINESS
STRATEGY
ORGANIZATION
OBJECIVES
ANNUAL
REPORTS
BUSINESS
REVIEWS

NATURE OF
INDUSTRY

ECONOMIC
CONDITION
S

THE PRIMARY SOURCE OF INFORMATION FOR FINANCIAL

ANALYSIS.
FINANCIAL STATEMENTS
QUALITY OF FINANCIAL ANALYSIS DEPENDS UPON THE
RELIABILITY OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS

FINANCIAL
STATEMENT
S

STANDARD
S

OTHER SOURCES
OF FINANCIAL
DATA

FINANCIAL
STATEMENT
S

STANDARD
S

OTHER SOURCES
OF FINANCIAL
DATA

PROVIDE INFORMATION ABOUT THE FINANCIAL POSITION,

PERFORMANCE,
BALANCE
SHEET
INCOME
STATEMENT
STATEMENT OF
CHANGES IN
OWNERS EQUITY
CASH FLOW
STATEMENT
NOTES TO THE
FINANCIAL
STATEMENTS

STATEMENT OF
FINANCIAL POSITION
COMPREHENSIVE
INCOME STATEMENT
INCREASE OR
DECREASE IN NET
ASSTS
FLOW OF CASH
EXPLANATORY INFORMATION ABOUT
ITEMS PRESENTED IN OTHER
COMPONENTS OF THE FINANCIAL
STATEMENTS, ACCOUNTING POLICIES

FINANCIAL
STATEMENT
S

STANDARD
S

OTHER SOURCES OF
FINANCIAL DATA

BUSINESS LANGUAGE
NEED

FINANCIAL REPORTING REQUIRES POLICY

CHOICES AND ESTIMATES. THESE CHOICES AND
ESTIMATES REQUIRE JUDGMENT, WHICH CAN
VARY FROM ONE PREPARER TO THE NEXT
GLOBALIZATION

FASB

GAAP
CONVERGANCE

IASB/IAS
C

IFRS

FINANCIAL
STATEMENT
S

STANDARD
S

OTHER
SOURCES OF
FINANCIAL
DATA

MD & A OR FINANCIAL REVIEW

Commitments for capital expenditures, the purpose of such

commitments, and expected sources of funding
Anticipated changes in the mix and cost of financing
resources
Events causing material changes in cost/revenue
relationships (e.g. future price increase)
Unusual or infrequent transactions that affect income from
continuing operations

AUDIT REPORT
IS DEFINED AS INDEPENDENT EXAMINATION OF BOOKS OF
ACCOUNTS AND RECORDS OF AN ENTITY WHETHER PROFIT
ORIENTED OR NOT IRRESPECT OF ITS LEGAL SIZE OR FORM,
WITH AN OBJECTIVE TO GIVE AN OPINION ABOUT THE
FAIRNESS OF FINANCIAL STATEMENTS, WHETHER OR NOT
THEY REFLECT TRUE AND FAIR VIEW OF COMPANYS
FINANCIAL POSITION AND PERFORMANCE

NEED

IT IS COMPULSORY FOR LIMITED COMPANIES

TO GET THEIR ACCOUNTS AUDITED BY
CHARTERED ACCOUNTANTS UNDER
COMPANIES ORDINANCE 1984, BANKING
COMPANIES ORDINANCE 1962, INSURANCE
ACT 1938, AND COOPERATIVE SOCIETIES RULES
1927.

TYPES OF AUDIT REPORT

UNQUALIFIED

QUALIFIED