Financial statement analysis

Financial statement analysis

For a investor it is hard to understand the financial condition of the financial statement.It is composed of four parts:Balance sheet,Income statement,statement of cash flow,statement of retained earning.The report is usually presented by annual and quarter year report.Financial statement in most of the countries are checked by an independent audit firm.It shows the relation between the many ratios which provides the investor the information about the last year business profile,the share holders' right and deventure,summarize the line of product and cost.

The important ratios for the analysis are the followings:

Current ratio=Current assets/Current liabilities;

Current assets=Cash+Bank balance+Accounts receivable+Closing stock +Prepaid expenses+Notes receivable;

Current liabilities=Account payable+Bank overdraft+Bill payable+Creditors+Other short term liabilities;

Quick ratio/Acid test ratio=Quick assets/Quick liabilities;

Quick liabilities=Current liabilities-Bank overdraft;

Quick assets=Current assets-(Closing stock+Prepaid expenses);

Debt-equality ratio=(Current liabilities+short term debt)/equity capital;

Stock turn over ratio=Cost of goods sold/Average stock;

Average stock=(opening stock+closing stock)/2;

Gross profit ratio=Gross profit/Net sales * 100%;

Net profit ratio=Net profit/Net sales *100%;