Detailed in-depth notes for the first year 'Financial Management' paper on 'Financial Statement Analysis'. Mainly based on lectures, with summaries of readings (where applicable), learnings from pre-work problems, and personal explanatory notes included where relevant.
Prepared by a student scorin...
Financial Statement Analysis
Overview
The purpose of financial statement analysis
Basics of financial structure and sources of finance
Trend analysis
Common size analysis
Ratio analysis
Cash flow analysis
Real world examples
Analytical concepts
Purpose of financial statement analysis
Different users have different objectives
Users: investors/owners, lenders, suppliers, customers, employees, government, public
Usually look from POV of equity investors and creditors
Basic questions of analysis: performance/ financial status
Financial structure
Gearing ratios compare equity and debt, with averages varying significantly between industries.
Higher gearing means more financial leverage and higher risk
| |
Sources of finance
Share issue
o Issue rights to existing shareholders (usually at a discount)
o Issue shares on a different capital market (discount usually not needed)
o Costs of underwriting and underwriter's guarantee to purchase shares not sold at a
given price so all shares would be sold out
Loans
o Financial institutions: commercial banks, syndicated loans etc.
o Public markets
, Bonds (issue debt directly to the capital market)
Leasing of assets
Trend analysis
Also called horizontal analysis
Compare the performance of a firm with its own past performance
Select a basis year (assign as 100), a five-year time frame or longer
*Alternatively, express each year as a basis of the previous year
How does the revenue evolve over a period? Do operating costs and operating profit evolve at
the same pace?
Common size analysis
Also called vertical analysis
Compare the performance of a firm with the performance of other firms
The items in the statement of comprehensive income expressed as a percentage of revenue; the
items in the statement of financial position expressed as a percentage of total assets, total
liabilities & shareholders' equity
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ib45pointer. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £5.52. You're not tied to anything after your purchase.