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| Picture depicts the concept of financial analysis |
Dear Friend!
Thank you very much for the thought-provoking question. But the
answer is very difficult as financial analysis is a vast
subject.
Still I will try my best to answer your question.
The financial statements form the basis of financial analysis of
a company and there are three key financial statements as follows:
3.
Cash Flow Statement
The balance sheet or the statement of affairs lists the assets
and liabilities. From the balance sheet we can derive the strength of the
company to meet its liabilities and obligations through three short-term
liquidity and long-term solvency ratios as follows:
The profit and loss account explains how the changes in the
balance sheet between two dates have taken place. It throws light on the
profitability of the operations of the company. Following are the key
profitability ratios that can be derived from the study of the profit and loss
account:
1.
EBDITA
2.
EBT
3.
PAT
The cash flow statement is a very important but often neglected
financial statement. Cash generated from the operations after meeting the
increase in inventory, receivable and other current assets, called
free cash flows is especially important. Many companies show
consistent profits but those profits are not sufficient to meet the working
capital requirements and are forced to borrow which in turn erodes future
profitability and the company is trapped in a vicious cycle negative operating
cash flows and borrowing to bridge the gap.
Suggested Further Reading:
On this blog a
number of articles and financial analysis reports of Indian companies listed on the stock exchanges are available:
- For reading: Research Reports and
- For download in pdf format: Free Downloads
I suggest you study a few and you will get practical experience.
Thank you,
With Warm Regards
Anand
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