Financial Statement Analysis

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Financial Statement Analysis by Mind Map: Financial Statement Analysis

1. FSA techniques

1.1. Cross-sectional

1.1.1. Ratio analysis

1.1.1.1. Liquidity ratio (quick ratio, current ratio)

1.1.1.2. Efficiency ratio (Inv T/O ratio, Avg collection period)

1.1.1.3. Profitability ratio (Gross profit-sales ratio, Net profit-sales ratio)

1.1.1.4. Leverage ratio (D/E, Int. coverage ratio)

1.1.2. Common-size statements: percentage of other items on total Assets.

1.2. Time series: evaluate ratio by detecting the improvement/deterioration in financial position

1.3. Combination: using FS & non-FS informations

2. Project analysis

2.1. Techniques

2.1.1. Payback period

2.1.2. Accounting Rate of Return

2.1.3. Discounted CFs (NPV, IRR, benefit-cost ratio)

2.2. Risk analysis

2.2.1. Sensitive analysis

2.2.2. Break-even analysis

2.2.3. Margin of safety

2.2.4. Cash break-even point

3. Steps to FSA

3.1. Obtain relevant FS

3.2. Check for consistency

3.3. Undertake preliminary scrutiny of FS

3.4. Collect industry data & general economic trends

3.5. Compare with Industry Avg.

3.6. Do supplementary analysis

3.7. Summarise main features

4. Limitations of FSA

4.1. Prob. with benchmark

4.2. Creative accounting/ Window dressing

4.2.1. Valuation of receivable inventory, property, mktable securities & other A.

4.2.2. L includes off-BS items

4.2.3. Changes in accounting methods

4.3. Historical data

4.4. Qualitative aspects

5. Loan assessment ratios

5.1. D/E

5.2. Current ratio

5.3. CF/ LT debt

5.4. Fixed charge cover

5.5. Net IR earned

5.6. Net profit after tax

5.7. Net profit b4 tax

5.8. Financial leverage

5.9. Inv. T/O in days

5.10. AR T/O in days