Review Of Literature On Financial Statement Analysis

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Matlab control system toolbox was then used to analyze the system model ..... This particular project covers the modelling of the robot, CHAPTER#2 Literature review The Literature review of this study will emphasis on the related studies on comparing and analyzing financial statements to make an investment. Objective of financial statement analysis Uses and users of financial statement analysis Classification of financial statement Relationship among the Statement of Financial Position, Income Statement, Statement of Cash Flows and Statement of Retained Earnings.

The basis of financial planning analysis and decision making is the financial information (Statements). Techniques of financial statement analysis Limitations of financial statement analysis Impact of inflation on financial statement analysis I. According to Meigs and Meigs (2003), financial statement are a structured representation of the financial position and financial performance of an entity.

It describes certain attributes of a company that is considered to fairly represent its financial activities. According to Meigs and Meigs (2003), the purpose of financial statement analysis is to provide information about a business unit for decision making purpose and such information need not to be limited to accounting data.

Meigs and Meigs (2003) stated that the rate of return on investment (ROI) is a test of management’s efficiency in using available resources. White ratios and other relationships based on past performance may be helpful in predicting the future earnings performance and financial health of a company, we must be aware of the inherent limitations of such data.

Financial analysis are often used by investors and are prepared by professionals (financial analyst), thus providing them with the basis for making investment decisions.

d) FINANCIAL INSTITUTIONS: Financial institutions (banks and other lending company) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long term bank loan or debentures) to finance expansion and other significant expenditures.a) Income Statement Income statement measures the company’s profitability over a period of time.In the income statement, the net income is calculated by subtracting all the expenses from income.However, when business conditions are good, the income statement receives more attention.Nevertheless, a financial analyst has to grapple on the above complexities of using financial statement analysis to achieve a specific purpose. Uses and Users of Financial Statement According to Akpan (2002), financial statement may be used by users for different purposes: a) OWNERS AND MANAGERS: Require financial statement to make important business decisions that affect its operations.According to Patrick, Ralph, Barry & Susan (20-92), income statement provides the information of the transactions occurred in a certain period of time called accounting period.Expenses include purchase, administrative expenses, selling expenses, depreciation, amortization expenses and income tax paid.Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures.These statement are also used as part of management’s annual report to the stockholders.This review is organized under the following sub-heads for ease of comprehension. According to Meigs and Meigs (2003), the key objectives of financial analysis are to determine the company’s earnings performance and the soundness and liquidity of its financial position.We are essentially interested in financial analysis as a predictive tool.

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