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Kuheli Das - 05

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17 views11 pages

Kuheli Das - 05

Uploaded by

Kashfa Naser
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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NAME: KUHELI DAS

UNIVERSITY ROLL NO: 95/MBA/230005

ASSIGNMENT SUBJECT: MANAGEMENT


ACCOUNTING

SUBJECT CODE: EF- 301(M1)

COURSE: MBA (3RD SEMESTER)


FINANCIAL
STATEMENT ANALYSIS
KEY CONCEPTS, COMPONENTS AND RATIOS
INTRODUCTION TO FINANCIAL STATEMENTS

• Definition: Financial statements provide a structured summary of a company’s financial


performance and position.
• Key Statements:
• Income Statement
• Balance Sheet
• Cash Flow Statement

• Purpose: Used by stakeholders to assess profitability, liquidity, and overall financial


health.
INCOME STATEMENT OVERVIEW

• Purpose: Shows a company’s revenue and expenses over a specific period, highlighting net
profit or loss.
• Formula:
• Net Income = Revenue - (COGS + Operating Expenses + Other Expenses)
• Key Elements:
• Revenue: Total sales or income generated.
• Cost of Goods Sold (COGS): Direct costs of producing goods.
• Operating Expenses: Indirect costs like SG&A (Selling, General & Administrative).
• Depreciation and Amortization (D&A): Non-cash expenses representing asset value
reduction.
KEY INCOME STATEMENT RATIOS

• Gross Profit Margin:


Gross Profit Margin = [(Revenue – COGS)/Revenue] * 100
• Operating Margin:
Operating Margin = [Operating Income/Revenue] * 100
• Net Profit Margin:
Net Profit Margin = [Net Income/Revenue] * 100

• Purpose: These ratios measure profitability at different levels, offering insights into cost control and
efficiency.
BALANCE SHEET OVERVIEW

•Purpose: Snapshot of a company’s assets, liabilities, and equity at a specific date.


•Basic Equation:
Key Components:

Asset = Liabilities + Equity


• Assets: Includes current assets (e.g., cash, receivables) and non-current assets (e.g., PP&E).
• Liabilities: Current liabilities (e.g., payables) and long-term debt.
• Equity: Owner’s stake, including retained earnings and common stock.
KEY BALANCE SHEET RATIOS

• Current Ratio:
Current Ratio = Current Asset / Current Liabilities
• Quick Ratio:
Quick Ratio = (Current Asset – Inventory) / Current Liabilities
• Debt-to-Equity Ratio:
Debt to Equity Ratio = Total Liabilities / Shareholders’ Equity
• Purpose: Measures liquidity and leverage, indicating short-term financial health and debt
reliance.
CASH FLOW STATEMENT OVERVIEW

•Purpose: Shows cash inflows and outflows over a period, segmented by activities.

•Sections:
•Operating Activities: Cash from core business operations.
•Investing Activities: Cash from asset purchases/sales.
•Financing Activities: Cash from debt/equity financing and dividends.

•Formula:
Net Cash Flow = Cash from operating activities + Cash from investing activities + Cash from Financing Activities
KEY CASH FLOW RATIOS

• Operating Cash Flow Ratio:


Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities
• Free Cash Flow:
Free Cash Flow = Operating Cash Flow – Capital Expenditures
• Purpose: Indicates the company’s ability to generate cash for operations and growth.
CONNECTING THE FINANCIAL STATEMENTS

• Integration: Each statement interrelates:


• Net Income (Income Statement) flows to Retained Earnings (Balance Sheet).
• Depreciation appears on both Income Statement and Cash Flow Statement.

• Importance: Combined analysis provides a comprehensive view of financial stability.


CONCLUSION

•Summary: Financial statements offer insights into profitability, solvency, and cash health.

•Key Ratios Recap: Profitability, liquidity, and cash flow ratios are essential for in-depth analysis.

•Final Note: Using these statements together supports informed decision-making and financial assessment.

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