Analysis and Interpretation of Financial Statements.doc - UNIVERSITY OF NAIROBI SCHOOL OF BUSINESS DEPARTMENT OF FINANCE AND ACCOUNTING MASTER OF

Analysis and Interpretation of Financial Statements.doc -...

This preview shows page 1 - 3 out of 11 pages.

UNIVERSITY OF NAIROBI SCHOOL OF BUSINESS DEPARTMENT OF FINANCE AND ACCOUNTING MASTER OF BUSINESS ADMINSTRATION DEGREE PROGRAMME DAC 501: FINANCIAL ACCOUNTING © Abdullatif Essajee and Herick Ondigo ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENT Introduction: Financial statements are essentially historical and static documents. They tell us what has happened during a particular period or series of periods of time. The most valuable information to most users of financial statements or reports, however, concerns what probably will happen in the future. The purpose of financial statement analysis is to assist statement users in predicting the future by means of comparison, evaluation and trend analysis. The first procedure in financial statement analysis is to obtain useful information. The main sources of financial information include, but are not limited to, the following: (i) Published Reports Quoted companies normally issue both interim and annual reports, which contain comparative financial statements and notes thereto. Supplementary financial information and management discussion as well as analysis of the comparative years’ operations and prospects for the future will also be available. These reports are normally made available to the public as well as to the shareholders of the company. (ii) Registrar of Companies Public companies are required by law to file annual reports with the registrar of companies. These reports are available for perusal at the registry upon payment of a minimum fee. (iii) Credit and Investment Advisory Agencies Some firms specialize in compiling financial information for investors in annual supplements. Many trade associations also collect and publish financial information for enterprises in various industries. Major stock brokerage firms and investment advisory services compile financial information about public enterprises and make it available to their customers. Some brokerage firms maintain a staff or research analysis department that study business conditions, review published financial statements, meet with chief executives of enterprises to obtain information on new products, industry trends, negative changes and interpret the information for their clients. (iv) Audit Reports When an independent auditor performs an audit, the audit report is usually addressed to the shareholders of the audited enterprise. The audit firms frequently also prepare a management report, which deals with a wide variety of issues encountered in the course of the audit. Such a 1
Image of page 1

Subscribe to view the full document.

management report is not a public document, however, it is a useful source of financial information. (v) Government Statistics and Market Research Organizations Objectives of Financial Statement Analysis Financial analysis is the process of critically examining in detail, accounting information given in financial statements and reports. It is a process of evaluating relationships between component parts of financial statements to obtain a better understanding of a firm's performance and financial position. Financial statement analysis involves three basic procedures:
Image of page 2
Image of page 3
  • Fall '17
  • mwangi

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes