Explain the Techniques of Financial Statements.

List of Some important techniques of analysis of financial statements:

Comparative Financial Statements:

It is a technique of financial analysis that shows change in each item of financial statements in absolute amount and percentage term, taking the item in preceding accounting year as base. Both the income statements and balance sheet can be prepared in the form of comparative financial statements.

Common-Size Statements:

Common-Size Financial Statements are those statements in which figures are converted into percentage to some common base. In Profit and Loss Account, sale figure is taken as 100 and all other figures are expressed as percentage of sales. Similarly for Balance Sheet the total of balance sheet is taken to be equal to calculated can be easily com-pared with the corresponding percentage in other periods and meaningful conclusions can be drawn.

Trend percentage Analysis:

Trend percentage analysis is a time series analysis to determine the trend of the financial data over a series of year.

Ratio Analysis:

It is implies analysis of financial statements with the aid of accounting ratios. It is the process of identifying the financial strengths and weakness of the enterprise by logically establishing relationship between the items of Income Statement (Profit & Loss Account) or Balance Sheet or both and interpreting the results there of in order to derive meaningful conclusions.

Funds Flow Statement:

Here ‘Fund’ means working capital. Funds Flow Statement shows sources and uses of working capital.

Cash Flow Statement:

The Cash Flow Statements means the statement of change in cash and equivalents. It shows the following for the period covered by it”

  • Net Cash Flows from Operating Activities.
  • Net Cash Flows from Investing Activities.
  • Net Cash Flows from Financing Activities.
  • Net change in Cash and Cash equivalents.

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