Financial statement analysis for beginners
Khurram Ali Mubasher, MSc, ACMA, CGMA, CPA
Shaping future leaders in Accounting & Finance | 12+ Years Corporate Experience | Associate CIMA & CPA | Educator | Sentiment Analysis Enthusiast
Finance?is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting.
Financial statements are way of communicating accounting information to its stakeholders. how much they have earned how much they owe. How much they have in bank etc.?
Stakeholder
Stakeholders are those people who are effected by the decisions of the company , employees, society, government , owners etc.?
What are uses of Financial Statements??
Financial statement are used for analysis and evaluation of company's performance for decision making e.g?Vacations or corporate remodelling, new car or maintenance allowance for employees, there are lot of decision we take on daily basis using various forms of analysis primarily we rely on financial information.?Hence, lot of people / organisations use these financial statements to make various decisions.?
Let’s see these statements from perspective of one of the stakeholders of the company
Do you know who shareholders of the company are? Can we call shareholder the owners of the company?
Few years back I was attending an year end meeting...?
Year end; this the day when bonuses are decided i am sure you know what an year ending or closing is.
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Company had arranged a beautiful resort for a whole week and all expenses paid trip for all employees including their families.?
There was a full day presentation for a Major shareholder of a company. We did everything thing to get praise or even a smile from him. after all day of presentations, reports and whatnot.?
At around 5 pm he stood up all worked up and saying what are you showing me? Why are you showing me all this, stop it, just tell me we how much money we made this year, that is it, what is the profit for the year. This is not a perfect example but is one of the question a shareholder / owner wants answered from financial statements.?
There are many other question similar to this asked by various stakeholders of the company such as an employee wants to know position of the pension fund or maybe he wants to know the salary withdrawn by the directors.?
Similarly the Government wants to know about how much tax they are expecting from the company.?
What if the above shareholder has share in 2 or 3 similar companies how would he compare which company did the best ???
Any idea?
Financial analysts use the help of ratios to make companies comparable. Ever heard of the word ratio ??
Ratio is a mathematical relationship between two variables. 60 marks in a subject is also 60%. Here the relationship is between marks obtained and total marks.?
Over the years academicians and practitioners have developed set of ratios to help answer various questions of stakeholders. This is not a end list it depends on questions that they want answered.
So If i put three companies in front of you A B and C which one will you select as the best company as a person who is shareholder of the company, please leave your answer in comments
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2 年Mahad Ahmed 16689 The best company for a shareholder would depend on various factors, including the financial performance of the company, the market trends, the industry outlook, and the company's strategic direction. A shareholder might use financial ratios, such as profitability ratios, liquidity ratios, and leverage ratios, to compare the financial performance of the three companies and make an informed decision. However, the specific ratios used and the weightage given to each factor may vary depending on the shareholder's preferences and investment goals.
Strategic Entrepreneur | Design & Development. SMM/PPC EBook Front Sales.
2 年Those who own all or a portion of the company's shares are referred to as shareholders. Investors consider several factors before making an investment in your business, such as your company's standing in the marketplace, the financial statements of the business, and the amount of money the business is bringing in. They anticipate the amount of future returns that the investment company will provide or earn. Companies will choose which company to invest in by keeping these factors in mind.
Sales Representative | Bachler's in Business Administration
2 年Those who own all or some of the company's shares are called shareholders. Shareholders who want to invest in your company look at a few things, including the company's reputation in the market, the financial statement, and the amount of revenue the company is making. Shareholders who care more about their profit do ratio analyses before investing. They anticipate the number of returns that the investment company will generate. The business will choose which company to invest in after considering these aspects.
IU'24 | BBA(H) | Marketing | Bayer| Xtreme Creation | LTML
2 年Name : mohsin mustafa Reg id: 53400 Share holders are actually, the owners of by company, they effected by the prausicution and decision making related to organization. The first priority of every organization is to extend the value of business. Share holders are only concerned about what kind of scenario has organization built. The manager wants to achieved the desirable result, getting more profit in return of investment. Finally he can do nothing with them, his only goal is to determine whether or not his money is safe, continue or growing will to do.
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2 年A shareholders are those who have all or some of the company's shares. To invest in your company shareholders look towards few thing included, your company's reputation in market, financial statement of the company, and how much revenue company is generating as shareholder care about their profit more so before investing they do ratio analyses . They look forward to how much returns on the investment company will give or generate in future. Keeping these factor in mind company will decide which company they should chose for investments.