Literature Review On Financial Statement Analysis

Literature Review On Financial Statement Analysis-61
a) Income Statement Income statement measures the company’s profitability over a period of time.

Management decides if they want to pay dividends or not.e) GOVERNMENT ENTITIES: Government entities (Tax authorities) need financial statements to ascertain the property and accuracy of taxes and other duties declared and paid by a company.f) VENDORS: They require financial statement to access the credit worthiness of the business g) MEDIA AND GENERAL PUBLIC: They are also interested in financial statements for a variety of reasons. Classification of Financial Statement According to Diamond (2006), all watchful business owners have an innate sense of how well their business is doing.Financial analysis are often used by investors and are prepared by professionals (financial analyst), thus providing them with the basis for making investment decisions.d) FINANCIAL INSTITUTIONS: Financial institutions (banks and other lending company) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long term bank loan or debentures) to finance expansion and other significant expenditures.Operating income is calculated by subtracting the depreciation and the other selling and administrative expenses.From the operating income, interest and/or amortization is paid which will result in earning before tax income of the entity.Initially gross profit is calculated by subtracting cost of goods sold from net sales.Cost of goods sold is the expense occurred from the sales of the goods, Labour cost, raw materials and overhead expenses occurred during the sales period falls under the cost of goods sold category.b) EMPLOYERS: Also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labour unions or for individuals in discussing their compensation promotion and rankings.c) PROSPECTIVE INVESTORS: They make use of financial statements to assess the viability of investing in a business.


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