FINANCIAL

STATEMENT
ANALYSIS

SUMAIYA LUQMAN

SALEEM AHMAD
 Introduction
Financial analysis is the process of
identifying the financial strengths and
weaknesses of the firm by property
establishing relationships between the
item of the balance sheet and the profit
and loss account.
Financial Statement Analysis means
“Analysis, comparisons and interpretation
of Financial data to achieve the desired
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FINANCIAL STATEMENTS
A financial statement is a formal record of a company's
financial activities. It provides a snapshot of the
company's financial health at a specific point in time
and can be used to assess its performance, financial
position, and cash flow.

There are three main types of financial statements:

Income Statement: Shows the company's
revenues, expenses, and net income (or loss) over a
specific period of time.
Balance Sheet: Shows the company's assets,
liabilities, and equity at a specific point in time.
Cash Flow Statement: Shows the company's
TYPES OF FINANCIAL
STATEMENTS ANALYSIS

1. Horizontal Analysis
Compares figures from different periods for the same
company.
Reveals trends, changes, and growth rates over
time.Can be used to assess the company's overall
financial health and performance.
2. Vertical Analysis
Compares different items within a single financial
statement to the total for that statement.Expresses
amounts as percentages to reveal the relative
importance of each item.Can be used to identify areas
of significant expenditure or revenue.
Techniques of Financial Statement Analysis

Comparative Analysis
Horizontal Analysis: Compares figures from different periods for the same
company.
Vertical Analysis: Compares different items within a single financial
statement to the total for that statement.

Common-Size Analysis

Expresses all items in a financial statement as a percentage of a base

amount (e.g., total assets or total revenue).

Ratio Analysis
Ratio analysis is a fundamental tool. It involves calculating various
financial ratios by dividing one financial statement item by another to
assess different aspects of a company's performance. These ratios can be
categorized into:Liquidity Ratios,Profitability Ratios,Solvency
COMPARATIVE STATEMENT:
The comparative financial statements are the statements of the financial position of different periods;
the elements of financial positions are then in a comparative form to give idea of financial position of
two or more periods. The comparative statement may show:
• Changes in absolute figures i.e. increase or decrease in absolute figures.
• Increase or decrease in terms of percentage

COMPARATIVE BALANCE SHEET:

It is a statement of financial position of a business at a specific movement of time. It represents all
assets owned by the business at a particular movement of time and the claims of the owners and
outsiders against those assets at the time. It is a way they shape the financial condition of the business
at that time.
COMPARATIVE INCOME STATEMENT:

The comparative income statement gives the results of the operation of a business. The comparative
income statement gives an idea of the program of a business over a period of time. The changes in
absolute data in money values and percentages can be determined to analyze the profitability of the
business.
• Observations (JSW Steel)
Shareholders' Funds: up 15.4% and Non-Current Assets up 12.7%, signaling growth and expansion potential for
JSW Steel.
Liquidity Drop: Cash down 67.8%, which may impact short-term flexibility.
Higher Leverage: Increased borrowings (+8%) could pose risks if revenue doesn’t keep pace.

Net Profit Increase: Profit before tax rose by 57.7%, a positive indicator for earnings growth, which could boost
investor confidence.
Operating Cash Flow Drop: Cash from operations fell by 93.1%, suggesting reduced cash generation from core
activities, potentially impacting short-term financial health.
Higher Investment Outflow: Cash used in investing activities increased by 26.8%, indicating ongoing capital
expenditures for growth, which may appeal to long-term investors.
Reduced Financing Outflow: Cash outflow from financing decreased by 19.4%, signaling controlled debt repayment,
which can improve financial stability.
Foreign Exchange Gains: An 88.9% increase in foreign exchange gains adds a minor boost to profitability.
Decline in Cash Reserves: Ending cash dropped by 92.1%, raising potential liquidity concerns.

Revenue Growth: Revenue from operations increased by 5.2%, showing steady sales growth, which can positively
• Observations (Mahindra & Mahindra)
Strong Shareholder's Equity: Shareholders' funds grew by 14.8%, reflecting strong financial health, which can boost investor
confidence.
Increase in Reserves and Surplus: Up by 15.0%, this suggests accumulated earnings, likely appealing to long-term
shareholders.
Higher Long-Term Borrowings: An 18.7% increase indicates expanded debt, which could raise leverage concerns but may also
fund growth.

Decrease in Net Profit Before Tax: Dropped by 23.9%, which could indicate reduced earnings potential,
possibly impacting investor sentiment.
Improved Operating Cash Flow: Operating cash flow deficit narrowed by 25.6%, suggesting better cash
management, which may positively impact stock stability.
Lower Cash Used in Investing Activities: A 52.7% reduction in investment outflows suggests cautious capital
allocation, potentially focusing on selective growth.
Decrease in Financing Cash Inflow: Financing activities brought in 29.8% less cash, reflecting reduced debt or
financing, which might affect expansion funding.

Strong Revenue Growth: Total revenue increased by 13.3%, driven by a 12.3% rise in operating revenues, indicating robust
demand, which may positively impact stock valuation.
Controlled Material Costs: Cost of materials consumed grew by 12%, slightly below revenue growth, suggesting efficient cost
management that could boost margins.
COMMON SIZE STATEMENTS:
The common size statement, balance sheet and income statement are shown in analytical
percentages. The figures are shown as percentages of total assets, total liabilities and total sales. The
total assets are taken as of and different assets are expressed as a percentage of the total.

Common size balance sheet:

A statement in which balance sheet items are expressed as the ration of each asset to total assets and
the ratio of each liability is expressed as a ratio of total liabilities is called common sized balance sheet.

Common size income statement:

The items in income statement can be shown as percentage of sales to show the relation of each item
to sales. A
significant relationship can be established between item of income statement and value of the sales.
The increase in sales will certainly increase selling expenses and not administrative are financial
expenses.
RATIO ANALYSIS:
A ratio is a simple mathematical expression. It is a number expressed in terms of another number,
expressing the quntitative relationship between the two, ratio analysis is the technique of
interpretation of financial statements with the help of various meaningful ratios. Ratios do not add to
any information that is already available, but they show the relationship between two items in a more
meaningful way.
 CURRENT RATIO QUICK RATIO

The Current Ratio is a financial metric that The Quick Ratio, measures a company’s ability to
measures a company's ability to pay its short- meet its short-term liabilities with its most liquid
term liabilities with its short-term assets. It is assets, excluding inventory.
calculated as: Quick Ratio=Current Assets−Inventory/
Current Ratio=Current Assets/ Current Liabilities
Current Liabilities ​
​
DEBT EQUITY RATIO OPERATING PROFIT RATIO

Measures financial leverage by comparing The Operating Profit Ratio measures a company's
total debt to total equity. operational efficiency by comparing operating profit
Debt to Equity Ratio=Total Debt/Total Equity to net sales.Operating Profit Ratio=
Net Sales/Operating Profit​×100
 PROPRIETARY RATIO TOTAL ASSETS TO DEBT RATIO

The Proprietary Ratio shows the proportion of Measures how many assets a company has per unit
shareholders' equity to total assets,Measures of debt, showing its ability to cover liabilities.
the portion of assets financed by shareholders' Total Assets to Debt Ratio=Total Assets/Total Debt
equity . ​
Proprietary Ratio= ​
Total Assets/Shareholders’ Equity
​
.
RETURN ON EQUITY RETURN ON CAPITAL EMPLOYED

ROE is a key indicator of financial ROCE is a crucial indicator of a company's ability to

performance, helping investors assess how generate returns from its capital investments,
well a company utilizes shareholder funds to providing insights for investors on operational
generate profits. effectiveness and financial stability.
ROE= Shareholders’ Equity/Net Income ×100 ROCE= Capital Employed/(EBIT) ×100
RETURN ON SHAREHOLDER’S FUND NET PROFIT RATIO

ROSF is a critical indicator of a company's ability The Net Profit Ratio is a key indicator of a company's
to generate returns for its shareholders, providing ability to convert revenue into profit, providing
insights into financial health and operational insights into operational efficiency and overall
efficiency. financial health.
ROSF= Shareholder’s Equity/Net Profit After Tax​ Net Profit Ratio= Total Revenue/Net Profit​×100
×100
THANK
You