152182Financial Statement Analysis Techniques

152182

Financial Statement Analysis Techniques

Financial Statement Analysis Techniques

To provide readers with knowledge to analyze the performance of their own business or to invest in other businesses Therefore, it is necessary to learn more about analyzing financial statements in other ways. Reading financial statements is like cooking. Once we are good at making simple dishes such as fried eggs, stir-fried vegetables, etc., we want to cook more difficult dishes such as red curry, coconut milk curry, and stir-fry. We have to learn more and more recipes because it is more difficult. Therefore, a more thorough analysis of the financial statements requires the arrangement of the numbers for easier viewing. Analyzing the budget of several years Most of the analysis will use financial statements for 3-5 years, arranged in a row for easier analysis.

Financial statement analysis is the process of finding facts about the financial position and performance of an entity. What are the good and bad points of the item? and find a solution because the analysis will help the management to be more efficient The main objectives of financial statement analysis are as follows:

1. To view past performance
2. To compare with the business itself and other businesses that are competitors
3. To analyze trends that the business will be better and worse
4. To plan future operations (make a budget)
5. To improve and improve the operating results to be more efficient

In addition to the main objectives of internal management analysis Here are some of the people most likely to take advantage of in financial statement analysis:

1. High-level executives of that business
2. Investor
3. Creditors or financial institutions giving credit
4. Government agencies
5. Auditing Company and Certified Public Accountant

Financial Analysis: There is 4 types of analysis techniques:

Technique 1: Horizontal Analysis, sometimes called Comparative Analysis, is a year-on-year comparison analysis. month by month The benefits of horizontal analysis are

to analyze the changes in the statement items by comparing them with the previous yea
to analyze the items in the statement to see which items increase or decrease in amount and percentage
to see trends for each item on a budget for better or worse
to bring business forecasts

Technique 2: Vertical analysis or vertical analysis , also known as Common-size Analysis, is a horizontal analysis. By using the budget of the year, whoever it is, and then compare it year to year, for example, the production cost of 2014 is 45% of the 2014 sales and the production cost of 2015 is 43% of the 2015 sales. We are enough. It can be concluded that the cost of production in 2015 is 2% lower than in 2014 by 2% per sales volume, and then we can come up with a reason for further cost reduction. in the income statement We’ll use sales as a denominator, giving other items a percentage of sales. For the balance sheet, we will take assets as the denominator. The benefits of vertical analysis are

It is used to compare the sales ratio or the asset ratio for each item on the income statement or balance sheet. This analysis allows us to know which items are more or less proportional. For example, salary expenses accounted for 20 percent of sales when we compared them with competitors who paid 10% of sales salary, so we knew that we had a much higher cost for this item than our competitors.
to reduce costs and expenses in a timely manner
to compare the operating results of each year and each item in the budget

Technique 3: Trend analysis is a horizontal analysis. but not comparing year to year It will be the first year to analyze as the base year. For example, we will analyze 5 years, starting from 2011-2015, we will use the number of 2011 as the base year, which is the year that is subtracted and divided by the following year. Find out which items have been trending since 2011, for better or worse. It is often used as a percentage rather than a number. But some financial analysts do both, monetary and percentage. The benefits of trend analysis are:

Used to see the trend of the business whether sales are improving or deteriorating from the base year And look at other important items such as profits or increased assets?
To forecast or prepare a projected income statement in the future because we already know the trend of each item.

Technique 4: Financial ratio analysis is to analyze the relationship between items in the same financial statements and compare the results with other years as well. It can also be compared with the financial ratios of competitors or large companies that we want to compare. Analyzing in this ratio, financial analysts Credit officers and investors prefer to use them to look at the strength of that business. See the ability of the executives to do business well or not and see if the position of the business is stable or not. Some people call this kind of analysis a check of the financial health of an entity. This ratio analysis gives managers and analysts a deeper insight into the real state of the company. Financial ratios are measured in four areas as follows:

Measure liquidity (Liquidity ratio)
Measure profitability (Profitability ratio)
Measure the efficiency of asset management (Asset management ratio).
Debt management ratio or Leverage ratio

Four financial analysis techniques allow us to know more about an entity than just reading the financial statements. Four techniques are commonly used by analysts and corporate executives in financial analysis.