Summary ACC1012 week 9 notes

Week 9

Financial Analysis – Financial Statements

• What is it?
- Using past financial information of a company to evaluate its performance and
determine its health

• Who does it and why?
- Analysts- perform analysis to sell/provide to others who use the information
- Funders- to determine if they should lend money to the company
- Investors- determine if they should invest in the company

• When is it done?
- When the need arises. Year-end, interim period- quarterly or bi-annually

• How is it done?
- Using financial information in financial statements and economic factors


• Non- financial information is also as important
- e.g. good corporate governance from management (NB for listed companies)

• This has an effect on the future performance of a company

• Fundamental Analysis- this includes non-financial and financial information of a
company. This analysis is done frequently in real life




Analysis Tools

,Financial Analysis

- Business context
- Overview of Financial Statements
- Ratio analysis

, Business context

 Global economy
- Eg: international economic cycle

 National economy
- (e.g. local economic cycle, interest
rates, exchange rates, etc.)

 Industry-specific
- (e.g. input prices, technological
advances, etc.)

 Company-specific
- (e.g. press reports, etc.)




Comparative financial statements

• trend analysis
• previous financial years usually 5–10 years
• Important when conducting an earnings based or cash flow valuation


Ratio analysis

- need comparatives to conduct ratios
-uses numbers to illustrate change over a set period