Financial Performance Analysis Essay examples

1717 Words May 30th, 2012 7 Pages
REVIEW OF LITERATURE
Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a tool in decision-making processes related to stocks, bonds, and other financial instruments.
Analysis of financial statements provides valuable information for managerial decision. Financial analysis is commonly called analysis and interpretation offinancial statement. Analysis of financial statements means establishing relationship between the items in financial statements for determining the financial strength and weakness of business. It is the process of scanning of the financial statements to judge profitability solvency, stability
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We have to make sure that people know exactly how we arrived to the final financial positions. We have to show the calculation but we have to avoid anything that is too mathematical. A business performance analysis indicates the further growth and the expansion. It gives a physiological advantage to the employees and also a planning advantage.
In trend analysis, ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with three to five years of ratios. The second type of ratio analysis, cross-sectional analysis, compares the ratios of two or more companies in similar lines of business. One of the most popular forms of cross-sectional analysis compares a company's ratios to industry averages. These averages are developed by statistical services and trade associations and are updated annually. (Ezzamel, Mar-Molinero and Beecher, 1987).
Susan Ward on May 1, 2008 in his article“ Financial Ratio Analysis for Performance Check” emphasis that financial analysis using ratios between key values help investors cope
with the massive amount of numbers in company financial statements. For example, they can compute the percentage of net profit a company is generating on the funds it has deployed. All other things remaining the same, a company that earns a higher percentage of profit compared to other companies is a better investment…

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