ANALYSIS OF Financial STATEMENTS-SELECTIVE TOOLS

Subtopics include financial accounting, cost accounting, management accounting, internal auditing external auditing, international accounting, governmental and not-for-profit accounting and taxes. The most common means of conveying information to users is through the preparation of financial statements: 1. the income statement, 2. the balance sheet, 3. the statement of cash flows, and 4. the statement of shareholders' equity.

The income statement presents the profitability of company over a period of time.

Generally accepted accounting principles (GAAP) are a set of standards, methods, procedures, and guidelines companies follow in measuring and reporting financial information in the financial statements. The current accounting professional body that sets standards is known as the Financial Accounting Standards Board (FASB). The FASB issues standards called Statements of Financial Accounting Standards (SFAS).

Introduction to Financial Accounting and GAAP

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Financial statements for two companies under these circumstances are not wholly comparable.

A financial analyst can adopt the following tools for analysis of the financial statements.; These are also termed as methods of financial analysis.

1.; Comparative Financial Statements:-

;Comparative Financial statements are those statements which have been designed in a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements. In these statements figures for two or more periods are placed side by side to facilitate comparison.; Both the Income statements and Balance Sheet can be prepared in the form of Comparative Financial Statements.

;Comparative Income Statements:-

Comparative Balance Sheet:-

;2.Common-size Financial Statements:-Common-size Financial Statements are those in which figures reported are converted into percentages to some common base.; In the income statements the sale figure is assumed to be 100 and all figures are expressed as a percentage of sales.; Similarly in the balance sheet the total of assets or liabilities is taken us 100 and all the figures are expressed as a percentage of this total.