FSA-Slide-1.pptx financial statement analysis

Faculty of Economics
Financial
Statement Analysis
Lecturer: Sediq Sherzad

Principles of
Marketing
After a review of basic accounting principles and terminology, this
course provides the student with a clear understanding of concepts,
standards and practices of financial reporting. The student learns to
read, understand and analyze a balance sheet, income statement and
statement of cash flows. Other topics include: concepts of cash,
receivables, inventory, payables, assets, liabilities, equity, revenue and
expense recognition and ratio analysis.
Course Description

Principles of
Marketing
• To provide the student with the ability to read, understand, and
analyze financial statements. Although the course will stress
accounting and data analysis, And how to prepare different
financial statements.
COURSE OBJECTIVE

Financial Statements Analysis
Principles of
Marketing
The process of reviewing and evaluating a company's financial statements,
thereby gaining an understanding of the financial health of the company and
enabling more effective decision making.
Financial statements record financial data; however, this information must be
evaluated through financial statement analysis to become more useful to
investors, shareholders, managers and other interested parties.
•A financial statement (or financial report) is a formal record of the financial
activities and position of a business, person, or other entity.
•Relevant financial information is presented in a structured manner and in a form
easy to understand

Principles of
Marketing
Why is this course critical to your future in business?
Whether you are preparing to be an entrepreneur, marketing
executive, banker, accountant, or general manager, you need
to understand the enterprise (the company),or a particular
division, or a unit, as to how well it is doing.

Principles of
Marketing
How do you determine how well the company is doing?
The ability to read and analyze Financial Statements
If you have an accountant or bookkeeper that prepares your financial
statements, how do you know whether the company is doing well
into insolvency (bankruptcy)?

Principles of
Marketing
If you are the CEO, or head of marketing of a company, how
do you know what is the impact of your decisions on the
company?

Need For Financial Analysis
Principles of
Marketing
• The U.S. has the most complex financial reporting system in the
world
•Major developed countries and many emerging markets’ financial
reporting has also develop gradually over the years.
•Unfortunately, economic events and accounting recognition tends to
be different in many countries
• Even in the U.S., accounting principles and economic events may be
recorded differently depending on the company or industry

Categories of Analysts
Principles of
Marketing
Equity investors—owners who seek to maximize return on investment, subject to a given risk
level
Credit granters—lenders who seek payment of principal and interest in a timely manner
Corporate managers—owners’ agents who seek information to plan and control their entity’s
operations
Merger and acquisitions specialists—professionals who, for a fee, rearrange corporations to
maximize shareholder value
Internal and external auditors—independent evaluators who attest to the fairness of
managerial representations (external auditors) and corporate employees who seek to
improve business operations (internal auditors)

Categories of Analysts
Principles of
Marketing
• Regulators—representatives of government entities who judge an entity’s
compliance with existing laws and regulatory requirements
• Corporate employees—individuals, or their collective bargaining agents, who
seek to maximize compensation for their services
• Financial Statement Analysis will help business owners and other interested
people to analyse the data in financial statements to provide them with
better information about such key factors for decision making and ultimate
business survival.

Purpose:
Principles of
Marketing
To use financial statements to evaluate an organisation’s
– Financial performance
– Financial position.
To have a means of comparative analysis across time in terms of:
– Intracompany basis (within the company itself)
– Intercompany basis (between companies)
– Industry Averages (against that particular industry’s averages)
To apply analytical tools and techniques to financial statements to obtain useful
information to help in decision making.

FOCUS ON INVESTMENT DECISONS
Principles of
Marketing
•Financial analysis is focused on the users of financial
statements
•This course will focus on companies whose securities are
publicly traded
•Therefore, the financial analysis will be on companies the
follow U.S. generally accepted accounting principles (GAAP)

Internal Users of financial Statements
(Management)
Principles of
Marketing
Plan :- Focus on assessing the current financial position and evaluating
potential firm opportunities.
Control :- Focus on return on investment for various assets and asset efficiency.
(able to generate returns)
Understand :- Focus on understanding how suppliers of funds analyze the firm.

Classes of External Users
Principles of
Marketing
•Credit and equity investors
• Short-term credit investors (banks and trade creditor)
• Immediate liquidity of business for early payback of debt
• Long-term credit investors (bondholders and pensions)
• Long-term assets position and earnings power capable of refunding
obligations at maturity
• Equity investors (shareholders)
• Long-term earning powers with ability to increase in value

Financial Information and Capital Markets
Principles of
Marketing
Financial
Reports Interrelationship
Capital
Market
(Stock Market)

Financial Information and Capital Markets
Principles of
Marketing
The better financial information provided on a timely basis
will provide the best indication of a company’s or market’s
true economic value

Financial Reporting System
Principles of
Marketing
The main objective is to provide financial information about the reporting
entity to users of the financial statements that is useful in making
decisions about providing resources to the entity, as well as other
financial decisions. That financial information includes a summary of the
transactions of the business of a period of time, usually twelve months.
In order to effectively report that information to the users a system must
be established that can capture data about the relevant transactions and
events that occur during the financial year, summarize them appropriately
and present them in a format that the users are capable of understanding.
This is the financial reporting system.

Principles of
Marketing
The Securities and Exchange Commission:
The U.S. Securities and Exchange Commission (SEC) is an
independent federal government regulatory agency responsible for
protecting investors, maintaining fair and orderly functioning of the
securities markets, and facilitating capital formation. It was created by
Congress in 1934 as the first federal regulator of the securities markets.
The SEC promotes full public disclosure, protects investors against fake
and manipulative practices in the market, and monitors corporate
takeover actions in the United States. It also approves registration
statements for book runners (lead underwriters) among underwriting
firms.
Securities and exchange commission

FSA-Slide-1.pptx financial statement analysis

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