Page 353 - VIRANSH COACHING CLASSES

9 Analysis of Financial Statements

Content

9.1 Meaning, Objectives and Limitations of Financial Statement Analysis.
9.2 Tools for Financial Statement Analysis
9.2.1 (A) Comparative Statement
9.2.2 (B) Common Sized Statement
9.2.3 (C) Cash Flow Statement

9.3 Meaning, Objectives and Classification of Accounting Ratios.

Competency Statements
o The students will be able to:

 Understand the meaning, objectives and limitation of financial statement analysis.
 Learn various tools for Financial statements analysis.
 Understand objectives and classification of Accounting Ratios and Ratio analysis.

Introduction to Ratios :
(A) Balance Sheet Ratio : (1) Current Ratio
(2) Liquid Ratio

(B) Income Statement Ratio : (1) Gross Profit Ratio
(2) Operating Profit Ratio
(3) Net Profit Ratio

(4) Operating Ratio
(C) Combined/Mixed Ratio : (1) Return On Capital Employed (ROCE)
(2) Return on Investment (ROI)
9.1 Meaning
The Financial Statements are those which are prepared periodically. Generally at the end of
financial year all the information recorded in the Books of Accounts of business is summarized in
Financial Statements.

“The Statements which are prepared by the business to find out profitability, efficiency, solvency,
growth of business to judge the financial strength and status are called as Financial Statements.”
These statements give complete picture of financial positions and managerial performance. Financial
Statements are prepared for the purpose of presenting Annual Report.

The Financial Statements are prepared by the profit concern as well as Non Profit concern
organisations.

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