Week 2: Financial Statement Analysis
1919 unread replies.7272 replies.
Financial Statement Analysis, specifically Ratio Analysis is often performed by
managers, investors, and creditors. What is the primary goal of each of these groups
when evaluating ratios?
**For full credit reply to the prompt and to another student's response. You should have
two postings for your 20 points.
o Collapse SubdiscussionCamiesha Harmon-Askew
Camiesha Harmon-Askew
Jan 10, 2021Jan 10 at 1:45am
Manage Discussion Entry
Professor and Class,
Financial statement analysis(FSA) gives you a snapshot of the overall profile of a
company.
Managers perform FSA for getting insights on how much progress they have made
in terms of achieving the target for the company. They perform the analysis to check
that everything is in place as far as the financial condition of the company is the
subject.
Investors perform FSA to invest in a company if the company is doing good and if
they think that the company will be more valuable in the future they will invest.
Investors will basically see how much free cash flows the company is generating,
management quality, liquidity ratio and growth ratios like sales growth, profit growth
YoY and QoQ.
Creditors will do FSA to give credit to the company mostly they will see the liquidity
coverage ratio, debt service ratio, asset turnover ratio, etc.
Reply Reply to Comment
Collapse SubdiscussionAlina Bell
Alina Bell
, Jan 10, 2021Jan 10 at 1:28pm
Manage Discussion Entry
Great summary, Camiesha. I would add that in order to be able to plan and forecast
business activity, managers should fully understand where their numbers come from
and how financial statements are produced. For example, any inconsistencies
recorded will produce different results. Ratios and their trends from month to month
will help managers track and identify internal problems, areas of improvement and
which departments are the performers, adequate levels of production, overstaffing
and so on.
On the same note, creditors and investors will do their financial statement analysis
based on data from several years. Trends, year over year data will give a banker, for
example, more insight than looking at one year's data. Also, comparisons with
industry benchmarks will give them insight for areas that need improvement,
successes and failures. Sometimes, an investor or creditor will have to take a
chance on a company - maybe with a little boost in funding, issues can be fixed and
the company will become more profitable (and will repay its debts).
Reply Reply to Comment
Collapse SubdiscussionJose Salcido
Jose Salcido
Jan 10, 2021Jan 10 at 9:21pm
Manage Discussion Entry
Camiesha,
Financial statements offer creditors a comprehensive look at the financial health
of a business. Details such as income, existing debt obligations, expenses,
salaries, profit and cash flow all factor into the overall business financial
profile. This is also known as credit analysis Credit analysis will be referring to
the assessment of the credit worthiness of borrower or credit risk involved with
the loan approval. Credit analysis will be analyzing the loan repayment ability of
the borrower so that these loan are repaid. They will also be analyzing the
probability of default. The primary purpose of credit analysis is to evaluate
whether or not a customer will pay the debt incurred. This will then give the
creditor the decision to choose its customers as they deem worthy.
, Credit Analysis Definition (investopedia.com) (Links to an external site.)
Reply Reply to Comment
o
Collapse SubdiscussionJose Salcido
Jose Salcido
Jan 10, 2021Jan 10 at 9:16pm
Manage Discussion Entry
Financial Statement Analysis (FSA is the process of analyzing the financial
statements of a company to evaluate its profitability and financial performance is
referred as financial system analysis. The purpose of financial analysis is to
ascertain business assets and stock. Financial statements such as income
statement, balance sheet and cash flow statement are used to calculate financial
ratios that are used to ascertain profitability, liquidity, efficiency as well as solvency.
There are several ways to analyze financial statements. such as Horizontal analysis,
Vertical analysis, and a Ration analysis.
Horizontal analysis is the process of analyzing the financial performance of a
company by comparing its performance in various periods is known as horizontal
analysis. Trend analysis is type of horizontal analysis used to calculate the changes
in economic cycle of a business for several years in terms of changes in percentage
using one of the years as base year.
Vertical analysis is the process of evaluating the financial performance of a company
by comparing with various companies is known as vertical analysis. Common-size
analysis is a form of vertical analysis which shows the percentages of each item in
relation to its base item.
Ratio analysis is the analysis of a company using the financial ratios and comparing
its trends and measure its performance within the company and the companies of
the industry is known as ratio analysis. The main categories of ratio analyses are
liquidity ratios, profitability ratios, activity ratios, and leverage ratios.
Financial Statement Analysis Definition (investopedia.com) (Links to an external
site.)
Methods of Analyzing a Financial Statement (chron.com) (Links to an external site.)
Read More
Reply Reply to Comment
,
Collapse SubdiscussionClark Anderson
Clark Anderson
Jan 12, 2021Jan 12 at 2:20pm
Manage Discussion Entry
Jose,
Would you say an investor would use Horizontal, Vertical, or Ratio analysis? I would
say they would use a little of each to determine where to put their money, however
Ratio analysis seems the best fit for an investor.
Clark
Reply Reply to Comment
Collapse SubdiscussionDevonte Stewart
Devonte Stewart
Jan 13, 2021Jan 13 at 4:38am
Manage Discussion Entry
Hi Clark,
Ratio analysis refers to the analysis and interpretation of the figures appearing in the
financial statements (i.e., Profit and Loss Account, Balance Sheet and Fund Flow
statement, etc.).
The following are the Benefit of ratio analysis:
1. Forecasting and Planning:
Computing ratios can know the trend in costs, sales, profits, and other facts of
relevant accounting figures. This trend analysis with the help of ratios may be useful
for forecasting and planning future business activities.
1919 unread replies.7272 replies.
Financial Statement Analysis, specifically Ratio Analysis is often performed by
managers, investors, and creditors. What is the primary goal of each of these groups
when evaluating ratios?
**For full credit reply to the prompt and to another student's response. You should have
two postings for your 20 points.
o Collapse SubdiscussionCamiesha Harmon-Askew
Camiesha Harmon-Askew
Jan 10, 2021Jan 10 at 1:45am
Manage Discussion Entry
Professor and Class,
Financial statement analysis(FSA) gives you a snapshot of the overall profile of a
company.
Managers perform FSA for getting insights on how much progress they have made
in terms of achieving the target for the company. They perform the analysis to check
that everything is in place as far as the financial condition of the company is the
subject.
Investors perform FSA to invest in a company if the company is doing good and if
they think that the company will be more valuable in the future they will invest.
Investors will basically see how much free cash flows the company is generating,
management quality, liquidity ratio and growth ratios like sales growth, profit growth
YoY and QoQ.
Creditors will do FSA to give credit to the company mostly they will see the liquidity
coverage ratio, debt service ratio, asset turnover ratio, etc.
Reply Reply to Comment
Collapse SubdiscussionAlina Bell
Alina Bell
, Jan 10, 2021Jan 10 at 1:28pm
Manage Discussion Entry
Great summary, Camiesha. I would add that in order to be able to plan and forecast
business activity, managers should fully understand where their numbers come from
and how financial statements are produced. For example, any inconsistencies
recorded will produce different results. Ratios and their trends from month to month
will help managers track and identify internal problems, areas of improvement and
which departments are the performers, adequate levels of production, overstaffing
and so on.
On the same note, creditors and investors will do their financial statement analysis
based on data from several years. Trends, year over year data will give a banker, for
example, more insight than looking at one year's data. Also, comparisons with
industry benchmarks will give them insight for areas that need improvement,
successes and failures. Sometimes, an investor or creditor will have to take a
chance on a company - maybe with a little boost in funding, issues can be fixed and
the company will become more profitable (and will repay its debts).
Reply Reply to Comment
Collapse SubdiscussionJose Salcido
Jose Salcido
Jan 10, 2021Jan 10 at 9:21pm
Manage Discussion Entry
Camiesha,
Financial statements offer creditors a comprehensive look at the financial health
of a business. Details such as income, existing debt obligations, expenses,
salaries, profit and cash flow all factor into the overall business financial
profile. This is also known as credit analysis Credit analysis will be referring to
the assessment of the credit worthiness of borrower or credit risk involved with
the loan approval. Credit analysis will be analyzing the loan repayment ability of
the borrower so that these loan are repaid. They will also be analyzing the
probability of default. The primary purpose of credit analysis is to evaluate
whether or not a customer will pay the debt incurred. This will then give the
creditor the decision to choose its customers as they deem worthy.
, Credit Analysis Definition (investopedia.com) (Links to an external site.)
Reply Reply to Comment
o
Collapse SubdiscussionJose Salcido
Jose Salcido
Jan 10, 2021Jan 10 at 9:16pm
Manage Discussion Entry
Financial Statement Analysis (FSA is the process of analyzing the financial
statements of a company to evaluate its profitability and financial performance is
referred as financial system analysis. The purpose of financial analysis is to
ascertain business assets and stock. Financial statements such as income
statement, balance sheet and cash flow statement are used to calculate financial
ratios that are used to ascertain profitability, liquidity, efficiency as well as solvency.
There are several ways to analyze financial statements. such as Horizontal analysis,
Vertical analysis, and a Ration analysis.
Horizontal analysis is the process of analyzing the financial performance of a
company by comparing its performance in various periods is known as horizontal
analysis. Trend analysis is type of horizontal analysis used to calculate the changes
in economic cycle of a business for several years in terms of changes in percentage
using one of the years as base year.
Vertical analysis is the process of evaluating the financial performance of a company
by comparing with various companies is known as vertical analysis. Common-size
analysis is a form of vertical analysis which shows the percentages of each item in
relation to its base item.
Ratio analysis is the analysis of a company using the financial ratios and comparing
its trends and measure its performance within the company and the companies of
the industry is known as ratio analysis. The main categories of ratio analyses are
liquidity ratios, profitability ratios, activity ratios, and leverage ratios.
Financial Statement Analysis Definition (investopedia.com) (Links to an external
site.)
Methods of Analyzing a Financial Statement (chron.com) (Links to an external site.)
Read More
Reply Reply to Comment
,
Collapse SubdiscussionClark Anderson
Clark Anderson
Jan 12, 2021Jan 12 at 2:20pm
Manage Discussion Entry
Jose,
Would you say an investor would use Horizontal, Vertical, or Ratio analysis? I would
say they would use a little of each to determine where to put their money, however
Ratio analysis seems the best fit for an investor.
Clark
Reply Reply to Comment
Collapse SubdiscussionDevonte Stewart
Devonte Stewart
Jan 13, 2021Jan 13 at 4:38am
Manage Discussion Entry
Hi Clark,
Ratio analysis refers to the analysis and interpretation of the figures appearing in the
financial statements (i.e., Profit and Loss Account, Balance Sheet and Fund Flow
statement, etc.).
The following are the Benefit of ratio analysis:
1. Forecasting and Planning:
Computing ratios can know the trend in costs, sales, profits, and other facts of
relevant accounting figures. This trend analysis with the help of ratios may be useful
for forecasting and planning future business activities.
