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LORD JESUS CHRIST SAYS

Jesus said, "Except ye eat the flesh of the Son of man, and drink his blood, ye have no life in you," (John 6:53).

1 Dec 2015

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 Hi friends. What is Financial Analysis?

The best source of financial information about a company is its own financial statements.  This is a primary source of information for evaluating the investment prospects in a company’s stock.  Financial statement analysis is the study of a company’s financial statement from various viewpoints.  The statement gives the historical and current information about the company’s operations.  Historical financial statement helps to predict the future.  The current information aids in analyzing the present status of the company.  The two main statements used in the analysis are:  Balance sheet and Profit and Loss account.  The balance sheet shows all of a company’s sources of funds (liabilities and stockholders’ equity ) and uses of funds at a given point in time.  The balance sheet can either be in the horizontal or vertical form.


 The balance sheet provides an account of the capital structure of the company.  The net worth and the outstanding long-term debt are known from the balance sheet.  The debt has certain advantages in terms of cost and market acceptability.  The use of debt creates financial leverage beneficial or detrimental to the shareholders depending on the size and stability of earnings.  If revenues are stable and certain, a large amount of debt can be carried and it is beneficial to the shareholder.  If the earnings fluctuate, the debt  should be low in the capital structure, so that the payment of interest is not detrimental to shareholders.  It is better for the investor to avoid a company with an excessive debt component in its capital structure.  From the balance sheet, the liquidity position of the company can also be assessed with the information on current assets and current liabilities.  The overall ability to pay its short-term obligation can be found out.


Profit and Loss Account Analysis of  the financial condition of the company requires a report on the flow of funds too.  The income statement reports the flow of funds from business operations that take place between two points of time.  It lists the items or income and expenditure.  The difference between the income and expenditure represents profit or loss for the period.  It is also called income and expenditure statement.



An investor should scrutinize the financial statements to find out the  manipulations, if any.  The auditors’ report and notes to the balance sheet give vital clues to the investor in this regard.  Analysis of financial statements should be undertaken only after nullifying the effects of any such manipulation.
 

Good Luck.                                                                 See You Later.

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