Definition of Financial Statement Analysis
1. Definition of Financial Statement Analysis “Analysis of financial statements means using various tools to assess the performance of the organization. by considering the information from the financial statements to know the status and stability of the business to make decisions and produce results reanalysis It is called the Financial Statement Analysis Report.”
2. Definition of Financial Statement Analysis “Analysis of financial statements means evaluating the performance of an entity. and operations of the entity. The process of analyzing financial statements consists of considering each item and comparing the importance of various financial items. The analysis shows the strengths. and weaknesses of the business This will help in planning, controlling and making decisions as well as helping to forecast future situations.”
3. Definition of Financial Statement Analysis: “Analysis of financial statements is the process of finding out the facts about the financial position. and operating results of any business from the financial statements of that business as well as bringing such facts together decision to continue operating in the future.”
From the above definitions, it can be concluded that Financial statement analysis refers to the process of searching. facts about the financial position and the performance of the business by using various tools to evaluate results for use in decision making or planning, control, decision making, including helping to forecast. Business situation of the future business
From the above definitions, it can be concluded that Financial statement analysis refers to the process of searching. facts about the financial position and the performance of the business by using various tools to evaluate the results for use in decision making or planning, control, decision making, including helping to forecast. Business situation of the future business.
Benefits of Financial Analysis
- As a preliminary screening tool for decision making especially in investment
- It is a tool to help forecast the financial position. and future performance and changes that may arise from the result various effects
- Make it known the results of the management of the management whether it meets the goals set or not
- Make aware of the current situation and can be a tool for evaluating future business
- It can be used as a decision-making input for users of the entity’s financial statements.
- To provide information for diagnosing problems in management financial status and other problems that may arise
- It is a supporting information for the performance appraisal of each department employee.
Financial statements … on users and purposes
Financial statements are used It can be used for a variety of purposes, depending on the user, including investors, employees, creditors, partners, governments and the public, where management is responsible for the preparation of
Prepared financial statements to provide information about the financial position performance and changes in the financial position of the business so that users can make decisions in an economic way. about finances This is considered a limitation of use.
Assumptions for preparing financial reports
Accrual basis : The financial statements are prepared on an accrual basis. Accounting transactions and events will be recognized as they occur. This is not when cash or cash equivalents are received or paid. Therefore, the accrual basis, in addition to providing information on past transactions, also provides information on the supplier’s obligations and the right to receive. Get future cash, too.
Going On : The financial statements are prepared on the assumption that the entity will continue to operate and continue to exist in the future, but if there is an intention or need to terminate the operation Financial statements must be prepared by other criteria. and must disclose Criteria for preparing the qualitative characteristics of financial statements
Qualitative characteristics refer to properties. That makes financial statements useful to users, which are in 4 things:
- Understandability : Information in financial statements must be readily understandable. If the user has knowledge of should be related to business, accounting and with reasonable intentions
- Relevance to decision making: Information must help users. Evaluate past events present and future It must be material information, that is, if the information is not displayed or misrepresented. will affect decision making
- Reliability: Information has properties of reliability. must be free from Mistakes That Matter and bias. In addition, the information must be a fair representation. as well as being based on content and economic reality, not using a legal form alone. also known as Content is more important than format.
- Comparison : Users of financial statements must be able to compare both retrospective comparison, intercompany comparison, comparative Quality in case of using different accounting methods
Limitations of Information in Financial Statements
Timeliness: An entity may be required to present the report in a timely manner before it is known. Information about transactions and accounting events of any nature.
The balance between benefits and costs: It is an issue to consider whether the benefits To be obtained from the information must be greater than the cost of procuring that information. or sometimes information that The presentation may benefit someone other than the person to whom the entity wishes to present the information.
The balance of qualitative characteristics: the problem lies in the importance of qualitative characteristics. The quality in each case is different, therefore it is up to the discretion to choose. such balance
Financial Ratio Analysis Techniques
Financial Ratio Analysis is the analysis of data in financial statements to find relationship between an item and an item Financial ratios are divided into 4 types: liquidity ratios; Risk ratio Profit efficiency ratio and operating efficiency ratio Financial ratio analysis requires comparison with historical data. or compare them with industry benchmark or average ratios in order to know their financial status. Company strengths and weaknesses and future trends of the company This enables the management to formulate an efficient financial management plan.
- Can tell the meaning of financial ratio analysis
- Tell the limitations of the ratio analysis.
- Can tell the type of financial ratio
- Calculate ratios for liquidity analysis and interpret analysis results.
- Calculate ratios for risk analysis and interpret analysis results.
Financial Ratio Analysis
- Liquidity Ratios
- Analysis of the performance (Efficiency Ratios)
- Profitability Analysis (Profitability Ratios)
- Analysis of the structure of capital or liabilities (Leverage Ratios or Financial Policy Ratios)
The statement of financial position or balance sheet is a statement that displays information about the financial position of a business at a particular date of the accounting period, showing assets, liabilities and owners’ equity. can explain the relationship of different parts of Statement of financial position is obtained from the equation
Assets = Liabilities + Owner’s Equity
Assets are resources that the entity owns and can be used in the future. which assets Can be divided into 2 types:
- Current assets refer to highly liquid assets that can quickly turn into cash. or assets expected to be utilized within 1 year
- Non-current assets are assets that must be held by the business for more than 1 period, not less liquid assets such as land, buildings, etc.
Liabilities are obligations of the entity at present. It is a burden that will result in the loss of useful resource benefits in the future. But some types of debt are good for businesses such as trade liabilities because it is a short-term debt without interest As a result, the business has more cash circulating in the business. Liabilities are divided into two types as follows:
- Current liabilities mean short-term liabilities that must be paid within 1 year.
- Non-Current Liabilities are long-term liabilities that require more than 1 year to be divided.
Owner’s equity is the equity of the business owner who has a stake in the assets of the business after deducting liabilities.
For example, Doi Thai.com.
Doi Thai.com Has an office for 500,000 baht, 1,000,000 baht in cash, 250,000 baht for computers and furniture, 550,000 baht in debt with banks, Doi Thai.com. Established with 2 partners, where Mr. Doi and Mr. Thai jointly share 600,000 baht each.
Assets of Doi Thai.com
Office 500,000 baht
Cash 1,000,000 baht
Computer and furniture 250,000 baht
Total 1,750,000 baht
Bank loan 550,000 baht
Mr. Doi 600,000 baht
Mr. Thai 600,000 baht
Total 1,200,000 baht
Instead of the relationship formula
Assets = Liabilities + Owner’s Equity
Substitute the formula 1,750,000 = 550,000 + 1,200,000
From substituting the formula, it can be seen that Liabilities plus owner’s equity is always equal to assets