Tuesday, 2 October 2018

Analysis of financial statements

An Analysis of financial statements is an analysis that was conducted to look at the financial condition of the company, work achievement and performance of the company in the past to current as well as future coming the prospect, which will be used as the basis for decision making by the parties concerned.

Financial report forms:

Balance Sheet (Balance Sheet)

The balance sheet also called financial position, it means that the balance sheet is useful to illustrate the financial position of an enterprise at a specific date (a moment of time). Usually a certain date fell per December 31. Financial position described is the position property, debt and capital.

Accounting equation: assets = Equity + obligation

Assets are investments expected to produce profits in the future through operating activities. Obligation is funding from creditors and represent obligations of the company or a creditor's claim over assets. Equity is the total of the income being invested or contributed to by the owner or the accumulation of profit is not distributed to the owner since the company was founded.

Income Statement (Income Statement)

Basically the income statement is a report that describes the ability or the company's performance in gaining the advantage in an accounting period. The elements spelled out in the financial statements include the income items and loads of companies that would later produce the profit or loss of the company.

Income statement measures the financial performance of the company between the date of the balance sheet. Income statement provides details of the revenue, expense, profit or loss of the company a period of time.

Report of The Shareholders ' Equity

Presenting the changes in equity of the outposts. This report is useful for identifying changes in equity of the holder of the claim or of the assets of the company.

Cash flow statement (Cash flow)

The cash flow statement cash flow showed a sign and cash flow out of a company. A cash flow statement presented during a certain period and classified in accordance with the operating activities, investment funding, and the most appropriate way with the business of the company.

The purpose of the analysis

The financial statements will be more meaningful to those who in touch if it has been compared to 2 or more periods and have done the analysis more knit to obtain data that would support in decision-making. Analysis of the financial statements conducted by reviewing, studying the relationship, as well as a tendency or the trend (trend) that will assist in determining the company's financial position and operating results of the company.

Methods and techniques of analysis

The function of the methods and techniques of analysis is to measure the attachment or the relationship of existing accounts on the report, it helps to know the changes that occur in each account when compared with:

  • A report obtained from some period (historical analysis)

  • The financial report has been drilled (analysis of variance)

  • The financial statements of other companies (the average analysis industry)

Each of the methods and techniques of analysis has the aim to simplify the data so that it is easier to understand.

Some kinds of analysis method:

Horizontal Analysis (dynamic analysis)

This method uses the comparative method of financial reporting in several periods, so that its development will be known.

Vertical Analysis (static analysis)

This method will result in a period of analysis only and no knowledge of its development. This analysis will be comparing between different accounts on financial statements, therefore, which will be known only the State of financial and operating results when that period only.

Users of Financial Statements Analysis

  • Management

  • Shareholders

  • The lender

  • Supplier

  • The Government of the

  • Employees

  • Consumers

  • Community

Here's some analysis techniques used in the analysis of financial statements:

Comparative Analysis of financial statements-this analysis will do a comparison of the financial statements in two or more periods in a way shows:

  • Absolute Data (number-the number of units of currency)

  • The increase and decrease in currency units

  • The increase and decrease in the percentage of

  • Comparison expressed in ratio

  • Percentage of total

This method will help in knowing the changes that occur and the changes which need to be done more research.

Trend or Tendency

To find out about the progress of the company and the company's position that the inclination is express in percentage form or trend percentage analysis, does the mainstream position, up or down.

Analysis of the sources and uses of working capital

Use to find out the sources and uses of working capital, working capital changes in a certain period.

Report the percentage per component (common size statement)

Useful to know the magnitude of the investment percentage in their respective assets, knowing the composition of the capital structure, a burdens associate with the number of sales.

Analysis of the sources and uses of cash (cash flow statement analysis)

Mated this analysis helps knowing from where resources and cash money was use, as well as the changes of the amount of money cash in a certain period.

Ratio Analysis

With the method of analysis, it will find out the relationship between specific accounts on the balance sheet.

Analysis of change in gross profit (gross profit analysis)

To find out the cause of the occurrence of a change of the company's gross profit from one period to the next period, or a change in gross profit in a certain period with earnings that have drill in the period.

Analysis of the break even (break even point)

Useful for analyzing the achievement level of sales so that the company suffer no losses, but also not benefit. An analysis of BEP will know the different levels of loss or gain in various levels of sales.

Benefit Analysis of Financial Reports

  • Identify the weaknesses and strengths of the company in the field of finance

  • Knowing The Company's Performance

  • Assist in the supervision of the company

  • Corporate leadership help in decision-making

See the development efforts of the company for some time. The steps in the Analysis of financial statements

Set a goal of analysis

Learn about the industry in which the companies operate by linking climate now and development of the economy. Developing knowledge about the company and management

Evaluate financial statements

Summarizes the invention on the basis of the analysis and decision making of the company, associate with the intend purpose

The types of analysis of financial statements

  • Horizontal Analysis

  • Vertical Analysis

  • Trend Analysis

  • Ratio Analysis

Horizontal Analysis

Is the analysis of comparing a post in the financial statements with the same post but at different periods?

Changes in the Rupiah = current year period Numbers – Numbers elementary year period

Percentage change = Change Rupiah divide period in basic number x 100

Vertical Analysis

The analysis compares the postal mail in a financial report with the other post that made a benchmark in the same period. Heading in financial statements that are customarily made a benchmark is sales and total assets.

Liquidity Analysis

Measure the ability of the company meet short term obligations due.

Current Ratio

Measuring the company's ability to meet short-term obligations due. How to calculate:

Current assets current liabilities divide.

Quick Ratio

Measuring the company's ability in paying off short-term obligations due from funds that truly liquid.

How to calculate:

Cash + Securities + Receivables current liabilities divide.

The Limitations of Financial Statements Analysis

  1. The financial statements are General and not intend to meet the needs of a particular party. The information present can be use for all parties. So it is force to always pay attention to all those users who actually have a difference of interests.

  2. The process of preparation of the financial statements did not escape from the use and interpretation of the variety of considerations in choosing an alternative from the various options that exist that are equally justify but raises the profit figures nor the asset difference

  3. Accounting will not include information that is not material. Similarly, the application of generally accept accounting principles of a fact or a particular post may not be carry out if this does not cause a material influence on the viability of the financial statements. Restrictions against the terms and amounts in order to escape.

  4. Financial report are conservative in the face of uncertainty when there is some possibility of an uncertain conclusions hit assessment of a heading then invariably chosen alternative that generates the net income or assets of the smallest. In other circumstances mentioned if there is indication of damages then it should be note but if there are indications are not record. So there is a holding gain was not disclose.

  5. The financial statements drawn up by the use of technical terms and user reports are assume to understand the technical accounting base and the nature of the information being report.

  6. Accounting quantitative information dominated. The qualitative nature of the information and facts that cannot be quantify are generally ignore. But it could just be quantitative information may be a picture or qualitative information indication.

  7. Changes in the purchasing power of money there but this is not reflect in the financial statements

Weakness analysis of financial reports

  1. Analysis of the financial statements is base on the financial report therefore the weakness of financial statements must always be kept in mind so that the conclusions of the analysis is not wrong.

  2. The object of the analysis of financial statements financial statements only. To assess a financial report is not enough to just from the figures of the financial statements. We also have to look at other aspects of the purpose of such companies, the economic situation, the situation of the industry, management style, company culture and the culture of the community.

  3. The object of the analysis is the data histories that describe the era laud this condition may vary with the condition of the future.

Type of Financial Report

The financial report release by the company usually consists of:

  1. balance sheet: a systematic report on assets, debt, capital of a company at a certain moment indicates financial position (assets, debt and capital) at a particular moment. The purpose of the balance sheet is showing the financial position of an enterprise at a certain date, usually at the time at which the books are close and the remainder at a determine the end of the fiscal year or the calendar year (e.g. December 31, 200 x)

  2. income statement: a report that shows the income from sales, various costs, and profit gaine by the company during a certain period

  3. profit balance report: shows changes in profit was detain during a certain period.

  4. cash flow statement: the cash flow Shows during a certain period.

  5. Notes to financial statements: the balance sheet contains details and income statements, accounting policies, and so on.

The main factors that gain particular attention in the analysis are:

  1. Liquidity

Shows the company's ability to meet its obligations at the time of billing is done. Liquid mean a company can pay its obligations punctually. While the liquidity mean a company that can't immediately pay its obligations when billing is done.

  1. the Solvency

This indicates the ability of a company to meet its obligations at the time the company is liquidate, either in the short or long term. The term " solvable " means the company is able to meet all its obligations when it liquidate. While "insolvable" means the total assets of an enterprise less than or less than the amount of the debt.

  1. Earnings ratios or profitability

The use of the assets that are intend to generate profits within a certain period. To find out the earnings ratios can be done by comparing between profit with total assets or capital in a certain period.

  1. Stability efforts

Shows the stability of the company in running its business, this stability can be measure by:

  • Ability to pay the interest charges incurred because of the company's debt and the company's ability in paying off the debt on time.

  • Ability in paying out dividends without any barriers or the company's financial crisis.

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