Financial Performance Analysis Paper

3495 Words14 Pages
CHAPTER – 03 THEORETICAL BACKGROUND OF THE STUDY 3.1 GENERAL INTRODUCTION Analysis is the process of evaluating the relationship between components parts of financial statement to obtain a better understanding of position and performance .the purpose of financial performance analysis is to diagnose the information contained in it is to judge the profitability and financial status of the various financial factors in business as disclosed by a single set of statement, and a study of the trend of these factors as shown in a series of statements. Financial performance analysis is a comprehensive analysis of all their financial statement: Balance sheet, income statement, and cash flow statement. A financial statement provides useful information.…show more content…
A financial statement helps to understand the performance of the organization. The performance of an organization can be explained based four important aspects of the business: a) Liquidity: liquidity shows the ability of the business to service the short term obligation b) Solvency: solvency shows the ability of the business to meet the long term obligation c) Efficiency: Efficiency shows the ability of the business to use the resources of the business. d) Profitability: profitability shows the ability to the business to generate and distribute profit The focus of financial analysis is on key figures in the financial statement and the significant relationship that exists relationship between component parts of financial statement to obtain a better understanding of the firms position and performance. The first task of financial analyst is to select the information relevant to the decision under consideration from the total information in the financial statement The second step is to arrange the information in a way to highlight significant relationship. The final step is to interpretation and drawing of inference and conclusions. In brief, financial performance analysis process is process of selection , relation and…show more content…
It is a statement of statement of revenues. If there is an excess of revenues over expenditure the income statement will show a profit and if the expenditures are more than the income then there will be a loss. The income statement is prepared for a particular period, generally a year. It includes all revenues and expenditures falling due in that year , irrespective of their receipt or payment. Financial analysis statements Financial statements are prepared primarily for decision. They play dominant role in setting the framework of managerial decision. However the information provided in the financial statements is not any end in itself as no meaningful conclusion can be drawn from these statements need to analyzed and interpreted so that suitable decision can then be taken on the basis of the information contained in them. The term financial analysis also known as analysis and nterpretaion of financial statements refers to the process of determine the financial strengths and weakness of a concern by establishing strategic relationships between the item of the balance sheet , profit and loss account and other operative data. In the words of Metcalf and Titard “Analyzing financial statement is a process of evaluation the relationship between component parts of financial statement to obtain better understanding of a firm position and
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