Financial Analysis And Financial Statements

Abstract

Financial analysis and research plays a key role whenever we need to evaluate an investment. To evaluate a business for investment, an investor or a creditor would begin by looking at the financial statements, the balance sheet, the income statement and the cash flow statement. Out of the many ways to analyse these statements, the simplest and most commonly used one is the calculation of financial ratios.

Financial ratios are simply mathematical comparisons of financial accounts. They are used to evaluate a firm’s standing and business performance. The main benefit of using ratios is that they are simple to calculate and can be used to compare companies big or small, across varied industries. To evaluate the investment, we generally

Users of Financial Statement Analysis

There are a number of users of financial statement analysis. They are:

Creditors-Anyone who has lent capital to a company would be interested in its ability to pay back that debt, and so would focus on various cash flow measures.

Investors-Would examine financial statements to learn about a company's ability to continue paying dividends, or to generate earnings, or to continue growing .

2. Financial ratios

Financial ratios are mathematical comparisons of financial statement accounts or categories. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing.

Financial ratios are widespread tools used to analyze a firms’s financial standing. They are easy to understand and simple to calculate. They can be used to compare companies in different industries. Also Since a ratio is just a mathematical comparison based on proportions, big and small companies can use ratios to compare their financial standing. Thus the financial ratios don't take into account the size of a company or the industry. They are just a raw computation of financial

He attempted to add to the existing techniques of volatility foreasting, by using accounting information. Stock volatility provides a measure of total risk in the equity investment. The hypothesis was that future volatility can be predictable by accounting volatility drivers. Another hypothesis was that the options market did not fully capture the accounting information while predicting futute volatility. The analysis established that at least 30 percent of the volatility in stock returns could be explained by the volatility in accounting drivers of