Financial Statement Analysis is a method of reviewing and analyzing a company’s report ( financial statement) . This procedure of reviewing the financial statement allows the company’s to have a better decision making. Financial Statement Analysis support users to make more better decison . Financial Statement Analysis is use to formulate financial reporting information to a wide variety of information and message to aid decisions . Provide adequate and reliable information to several board of directors. This statement are mainly ready for decision making or consideration purpose. Financial Statement Analysis prepare a vital piece of information for business decisions. Financial Statement Analysis also provide the most profitable information at the least cost.
Financial Statement Analysis can used to expected the past performance growth rates of income, revenue, and expenses in the future. Financial Statement Analysis predicting the future investor and to anticipate the future status. This statement making plans to set up action that influence future events for the prospect management. To enable the organization to ameliorate its overall financial situation in the future.
Financial Statement Analysis also can be assigned into several additional purpose which is making decision. To making credit decisions. Lender use the overall set of information in the financials to determine the situation. Besides, to making investment decisions. Investor use the provided information by the financial statement whether they want to invest and the price per share they want to invest to the company. Investing activities refer to a company’s maintenance of investments for purpose of sales .This activity providing services and for the purpose investing in managing assets is an investment mainly for the purpose of carry out the company’s business . Other than that, is to making taxation decisions. The government use the info provided by the company to tax a business or a company based on the assets or income from the financial statement. The company who have a lot of assets such as property and vehicles may tax more. So the company have to pay the tax to the government for all the assets own and the income. The company have to pay the income tax for the year .
Financial Statement are consist four main area there are balance sheet, income statement, cash flow statement, and retained earnings. Firsts of all, the objective of balance sheet is to show the assets of the company’s. Balance sheet are based on a reporting period in a day, a month, a quarter and a year. Balance sheet include assets ( property, vehicles, fixture, furniture, and debtor ) , liabilities are ( creditor and bank overdraft ) and owner’s equity ( capital, drawings, sales, purchase, revenue and expenses ). Secondly, the objective of income statement is to show the revenue that are earned by the company during reporting stage . The report are included the expenses and the cost to produce a product on the production process. This revenue to refered to the profit statement and loss statement. Besides that, the cash flow statement is to display a company’s origin of cash and uses of cash. The cash flow statement is considered to be less important than the income statement and balance sheet, but this cash flow statement can be show and comprehend the trends of a business performance. The cash flow statement is important to let the investors to find out the cash flow statement to be transparent. While making investment decisions. Cash flow statement can be are distributed into three types there are cash flow from operating activities, cash flow from investment activities and financial activities of the firm. In addition, the last components in the balance sheet there are retained earnings. Retained earnings represents the net income accumulated by a company that are not paid distributed as dividends to the company’s shareholders. Purpose of the statement retained earnings is to connect the income statement and balance sheet. The reatain earnings are described the changed in retained earnings between two balance sheets dates. Retained earnings are demonstrated what are the firm’s did with their profit. Retained earnings statements are increased through the net income and decreased through the net loss and dividends for the year of the company. There are two types of retained earnings which is restricted retained earnings and unrestricted retained earnings. The restricted retained earnings are the amount show the earning amount are be kept in the company for specific purposed. It is kept by the entity for reinvesting it in the business. The unrestricted retained earnings are the amount show the net income has been earned in the company and is available to distributed to the shareholders as dividends. Instead of distributing the overall profits to the shareholders, company can retains some profit for the purpose of accumulation of earnings, investment in fixed assets and to meet working capital needs.
The reason why the company, firm, and corporation need to prepared financial statement analysis are provided below. Financial Statement Analysis is a chart to survey overall business performance and used to estimate an business financial performance. This statement obtain more useful foresight to a business financial and economic performance. The statement have been prepared to evaluate on the past performance with the present financial situation. Financial Statement Analysis prepared information about the change in financial position and formulate info about financial position of an enterprise. Financial Statement Analysis is a major statement to determine company’s potential and the problem area of financial. The company can take the proper way and suitable steps to dealing their weaknesses of the situation. A statement to against exceeded cost of production. To prevent the situation of the business are over expenses. The company can limit the business for exceeded expenses for a year to increase the profit and reduce the cost for produce product. A statement to managing and control the company. A comparison with others competitors. The statement is to determine and establish financial health. A chart to show the firm’s progress. To evaluate the profitability of the enterprise in the future. Besides, to survey the debt capacity of the company. To understand the long-term and short-term solvency o the firm. A statement to know the return of capital employed invested. To know the products area that generate by the company are produce maximum returns. The Financial Statement Analysis to show the company a statistical analysis and interpretation of financial statement can provide a much appreciated service insight into a firm’s performance. Conclusion, there are many benefits when the company prepared the Financial Statement Analysis there can predict their future and managing their business not over the expenses. The management to increase their profit and revenue. The preparation of Financial Statement Analysis can maintain the company in the good and profitable financial position.