WHAT TO INCLUDE IN FINANCIAL ANALYSISWhat is a Financial Analysis Report?Comprehensivefinancial analysis reportsaccentuate the strengths and weaknesses of a company. Communicating the companys strengths and weaknesses in an accurate and honest manner is helpful in convincing the investors to invest in your business. Afinancial analysis reportis, basically, a document that attracts high interest of investors as it contains a detailed appraisal of a companys financial health.How to write a Financial Analysis Report1. Start the report with an Executive Summary of important findings from the financial analysis. Also state the time period focused by the study in addition to identifying the firm requesting the report.2. Set up an introduction emphasizing the objectives of the report. Also define financial terms necessary for understanding those objectives.3. Move on to a section with Resources title. Give a general description of the analyzed data and where has it been sourced from. Some examples of resource include balance sheets, income statements, operating costs, inventory ratios, and warehouse statistics.4. Further describe the resources under the heading Method of Collecting Data. Mention whether the data was received from different sources, like government agencies or departments within the firm. Also explain each sources method for reporting data. Explain about the method ofaccounting analysisfor these distinct reporting methods.5. Title the next section as Significant Financial Events and under this section, enlist the events which occurred during the studied time period and which altered results.6. Proceed with a section titled Detailed Results which includes a comprehensive analysis about the investment returns, balance sheets, income statement, and productivity ratios. Also comment on each of these factors in addition to providing support for your statements with graphs and tables.7. Evaluate results from various quarters in a section titled Analysis of Variance.8. Prepare an appendix for Financial Revenues defining how that term was used for preparing the report. Tabulate the revenues over the analysis time period.9. End the report with an appendix for Observations discussing any problems faced while performing analysis and thereafter explaining about how research method handled problems. Conclude the report with a statement projecting future performance on the basis of past years performance.

Financial Statement AnalysisFinancial analysis PrintEmailIntroduction to Financial Statement AnalysisFinancial statementanalysis can be referred as a process of understanding the risk and profitability of a company by analyzing reported financial info, especially annual and quarterly reports. Putting another way, financial statement analysis is a study about accounting ratios among various items included in the balance sheet. These ratios include asset utilization ratios, profitability ratios, leverage ratios, liquidity ratios, and valuation ratios. Moreover, financial statement analysis is a quantifying method for determining the past, current, and prospective performance of a company.Advantages of financial statement analysisThe different advantages of financial statement analysis are listed below: The most important benefit if financial statement analysis is that it provides an idea to the investors about deciding on investing their funds in a particular company. Another advantage of financial statement analysis is that regulatory authorities like IASB can ensure the company following the required accounting standards. Financial statement analysis is helpful to the government agencies in analyzing the taxation owed to the firm. Above all, the company is able to analyze its own performance over a specific time period.Limitations of financial statement analysisIn spite of financial statement analysis being a highly useful tool, it also features some limitations, including comparability of financial data and the need to look beyond ratios. Although comparisons between two companies can provide valuable clues about a companys financial health, alas, the differences between companies accounting methods make it, sometimes, difficult to compare the data of the two.Besides, many a times, sufficient data are on hand in the form of foot notes to the financial statements so as to restate data to a comparable basis. Or else, the analyst should remember the lack of data comparability before reaching any clear-cut conclusion. However, even with this limitation, comparisons between the key ratios of two companies along with industry averages often propose avenues for further investigation.SummaryTo summarize, financial statement analysis is concerned with analyzing the balance sheet and the income statement of a business to interpret the business and financial ratios of a business for financial representations, business evaluation, in addition to financial forecasting.SoftwareUsers can analyze IFRS or US GAAP statement using such software asReadyRatios financial analysis software.

Horizontal Analysis of Financial StatementsFinancial analysis PrintEmailHorizontal analysis of financial statementsinvolves comparison of a financial ratio, a benchmark, or a line item over a number of accounting periods. This method of analysis is also known as trend analysis. Horizontal analysis allows the assessment of relative changes in different items over time. It also indicates the behavior of revenues, expenses, and other line items of financial statements over the course of time.Accounting periods can be two or more than two periods. Accounting period can be a month, a quarter or a year. It will depend on the analysts discretion when choosing an appropriate number of accounting periods. During the investment appraisal, the number of accounting periods for analysis is based on the time horizon under consideration.Horizontal analysis of financial statements can be performed on any of the item in the income statement, balance sheet andstatement of cash flows. For example, this analysis can be performed on revenues, cost of sales, expenses, assets, cash, equity and liabilities. It can also be performed on ratios such as earnings per share (EPS), price earning ratio, dividend payout, and other similar ratio.Horizontal analysis can be performed in one of the following two different methods i.e. absolute comparison or percentage comparison. Absolute Comparison:One way of performing horizontal analysis is comparing the absolute currency amounts of some items over the period of time. For example, cash in hand at the end of an accounting period can be compared to other accounting periods. This method is helpful in identifying the items which are changing the most. Percentage Comparison:In the second method of horizontal analysis, percentage differences in certain items are compared over a period of time. The absolute currency amounts are converted into the percentages for the purpose of comparison. For example, a change in cash from $5,000 to $5,500 will be reported as 10% increase in cash. It can also be reported as 110%, which means that the cash is 110% of the cash at the end of previous accounting period. This method is useful when comparing performance of two companies of different scale and size.

Vertical Analysis of Financial StatementsFinancial analysis PrintEmailVertical analysis of financial statementsis a technique in which the relationship between items in the samefinancial statementis identified by expressing all amounts as a percentage a total amount. This method compares different items to a single item in the same accounting period. The financial statements prepared by using this technique are known as common size financial statements.This analysis is performed on the income statement as well as the balance sheet. Balance Sheet:When applying this method on the balance sheet, all of the three major categories accounts (i.e. assets, liabilities, and equity) are compared to the total assets. All of the balance sheet items are presented as a proportion of the total assets. These percentages are shown along with the absolute currency amounts. For example, suppose a company has three assets; cash worth $4 million, inventory worth $7 million and fixed assets worth $9million. The vertical analysis method will show these asCash: 20%Inventories: 35%Fixed Assets: 45% Income Statement:And when applying this technique to the income statement, each of the expense is compared to the total sales revenue. The expenses are presented as a proportion of total sales revenue along with the absolute amounts. For example, if the sales revenue of a company is $10 million and the cost of sales is $6 million, the cost of sales will be reported as 60% of the sales revenue.The main advantage of using vertical analysis of financial statements is that income statements and balance sheets of companies of different sizes can be compared. Comparison of absolute amounts of companies of different sizes does not provide useful conclusions about their financial performance and financial position.Usually the vertical analysis is performed for a single accounting period to see the relative proportions of different account balances. But it is also useful to perform vertical analysis over a number of periods to identify changes in accounts over time. It can help to identify unusual changes in the behavior of accounts. For example, if the cost of sales has been consistently 45% in the history, then a sudden new percentage of 60% should catch the attention of analysts. Reasons behind this change should be investigated and then measures should be taken to bring this percentage back to its normal level.

Balance SheetAccounting PrintEmailBalance sheetis a snapshot of a company's financial condition at a specific moment in time, usually at the close of an accounting period. The balance sheet is the core of the financial statements (the other major financial statements are the income statement (statement of comprehensive income), statement of changes in equity and statement of cash flows). Unlike the other financial statements, balance sheet is accurate only at one moment in time, not a period of time.The balance sheet comprises assets (e.g. cash, inventory, etc.), liabilities (e.g. debt, accounts payable, etc.) and equity (e.g. share capital, retained earnings, reserves, etc.).The balance sheet is also referred to as the statement of financial position (new IFRS name of the statement). For more information about structure and composition of the balance sheet see "Statement of financial position".

Statement of Financial PositionAccounting PrintEmailStatement of financial positionis the new name of the balance sheet used in IFRS.International Financial Reporting Standards (IAS 1) do not prescribe the exact format of the Statement of financial position but it can be obtained from IFRS Taxonomy. Just that official format is build into the ReadyRatios analytical software.According to the IFRS Taxonomy Statement of financial position has the following format (current/non-current variant):ReferenceIAS (IFRS), p.IFRS Taxonomy 2011 XBRL name

ASSETSAssets

Non-current assetsNoncurrentAssets

Property, plant and equipment1p54a, 16p73dPropertyPlantAndEquipment

Investment property1p54bInvestmentProperty

Goodwill1p54cGoodwill

Intangible assets other than goodwill1p68(c)IntangibleAssetsOtherThanGoodwill

Investment accounted for using equity method1p54e, IFRS 8p24a,28eInvestmentEquityMethod

Investments insubsidiaries, joint ventures and associates1p55InvestmentsAssociates

Non-current biological assets1p54fNoncurrentBiologicalAssets

Trade and other non-current receivables1p54h,78bNoncurrentReceivables

Deferred tax assets1p54o,56, 12p81gDeferredTaxAssets

Current tax assets, non-current1p54nCurrentTaxAssetsNoncurrent

Other non-current financial assets1p54d, 32p11OtherNoncurrentFinancialAssets

Other non-current non-financial assets1p54OtherNoncurrentNonfinancialAssets

Non-current non-cash assets pledged as collateral for which transferee has right by contract or custom to sell or repledge collateral39p37IFRS9NoncurrentCollateral

Current assetsCurrentAssets

Current inventories1p54gInventories

Trade and other current receivables1p54h1p78bTradeAndOtherCurrentReceivables

Current tax assets, current1p54nCurrentTaxAssets

Current biological assets1p54fCurrentBiologicalAssets

Other current financial assets1p54dOtherCurrentFinancialAssets

Other current non-financial assets1p54OtherCurrentNonfinancialAssets

Cash and cash equivalents1p54i7p45CashAndCashEquivalents

Current non-cash assets pledged as collateral for which transferee has right by contract or custom to sell or repledge collateral39p37IFRS9CurrentCollateral

Non-current assets or disposal groups classified as held for sale or as held for distribution toowners1p54jIFRS5p38NoncurrentToOwners

EQUITY and LIABILITIESEquityAndLiabilities

EquityEquity

Equity attributable to owners of parentEquityAttributableToOwnersOfParent

Issued (share) capital1p54rIssuedCapital

Share premium1p54rSharePremium

Treasury shares1p54rTreasuryShares

Other equity interest1p54rOtherEquityInterest

Other reserves1p54rOtherReserves

Retained earnings1p54rRetainedEarnings

Non-controlling interests1p54qNoncontrollingInterests

LiabilitiesLiabilities

Non-current liabilitiesNoncurrentLiabilities

Non-current provisions for employee benefits1p54lNoncurrentBenefits

Other long-term provisions1p54lOtherLongtermProvisions

Trade and other non-current payables1p54kNoncurrentPayables

Deferred tax liabilities1p54o12p81giDeferredTaxLiabilities

Current tax liabilities, non-current1p54nCurrentTaxLiabilitiesCurrent

Other long-term financial liabilities1p54mOtherNoncurrentFinancialLiabilities

Other non-current non-financial liabilities1p54OtherNoncurrentNonfinancialLiabilities

Current liabilitiesCurrentLiabilities

Current provisions:CurrentProvisions

Current provisions for employee benefits1p54lCurrentProvisionsForEmployeeBenefits

Other short-term provisions1p54l37p84aOtherShorttermProvisions

Trade and other current payables1p54kTradeAndOtherCurrentPayables

Current tax liabilities, current1p54nCurrentTaxLiabilities

Other current financial liabilities1p54mOtherCurrentFinancialLiabilities

Other current non-financial liabilities1p54OtherCurrentNonfinancialLiabilities

Liabilities included in disposal groups classified as held for sale1p54pLiabilitiesSale

SStatement of Comprehensive IncomeAccounting PrintEmailStatement of Comprehensive IncomeComprehensive income is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Thestatement of comprehensive incomeillustrates the financial performance and results of operations of a particular company or entity for a period of time.According to International Financial Reporting Standards since 1 January 2009 an entities make: aStatement of comprehensive income (see the tablebelow) or twoseparate statements comprising: anIncome statementdisplaying components of profit or lossand aStatement of comprehensive incomethatbeginswith profit or loss (bottom line of the income statement) and displays the items ofother comprehensive incomefor the reporting period (IAS 1 p.81)So the statement of comprehensive income aggregates income statement(profit and loss statement)andother comprehensive income which isn't reflected in profits and losses. "Total comprehensive income is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners." (IAS 1 p.7)The statement of comprehensive income is one of the major financial statements used by accountants and business owners (the other major financial statements are the balance sheet (statement of financial position), statement of changes in equity and statement of cash flows).IFRS do not prescribe the exact format of theStatement of comprehensive incomebut it can be obtained from IFRS Taxonomy. Just that official format is built into the ReadyRatios analytical software.Statement of Comprehensive IncomeReferenceIAS (IFRS), p.IFRS Taxonomy 2010 XBRL name

COMPREHENSIVE INCOME1p106a1p82iComprehensiveIncome

PROFIT (LOSS)1p82fProfitLoss

Profit (loss) from continuing operations1p82fProfitOperations

Profit (loss) before taxIFRS 8p23, 8p28bProfitLossBeforeTax

Gross profit1p103GrossProfit

Revenue1p82a, 18p35b, IFRS, 8p28aRevenue

Cost of sales1p99CostOfSales

Other income1p103, 1p102OtherIncome

Distribution costs1p99DistributionCosts

Administrative expense1p99AdministrativeExpense

Other expense1p99OtherExpenseByFunction

Other gains (losses)1p103, 1p102OtherGainsLosses

Profit (loss) from operating activitiesProfitLossFromOperatingActivities

Difference between carrying amount of dividends payable and carrying amount of non-cash assets distributedIFRIC17p5DifferenceDistributed

Gains (losses) on net monetary position9p29GainsPosition

Gain (loss) arising from derecognition of financial assets measured at amortised cost1p82 aaGainLossAmortisedCost

Difference between carrying amount of non-cash assets distributed and carrying amount of dividends payableIFRIC 17p5DifferencePayable

Finance incomeIFRS 7 IG13FinanceIncome

Finance costs1p82bFinanceCosts

Share of profit (loss) of associates and joint ventures accounted for using equity method1p82cShareMethod

Gains (losses) arising from difference between previous carrying amount and fair value of financial assets reclassified as measured at fair valueEffective 2013-01-01 IAS 1.82 caGainsValue

Income tax expense (from continuing operations)1p82d, 7p20IncomeTaxOperations

Profit (loss) from discontinued operations1p82e-iProfitOperations

OTHER COMPREHENSIVE INCOME1p91OtherComprehensiveIncome

Other comprehensive income, net of tax, exchange differences on translation1p91, 1p82gOtherOnTranslation

Other comprehensive income, net of tax, available-for-sale financial assets1p91, 1p82gOtherAssets

Other comprehensive income, net of tax, cash flow hedges1p91, 1p82gOtherHedges

Other comprehensive income, net of tax, hedges of net investments in foreign operations1p91, 1p82gOtherOperations

Other comprehensive income, net of tax, gains (losses) from investments in equity instruments1p7dOtherInstruments

Other comprehensive income, net of tax, gains (losses) on revaluation1p91, 1p82gOtherRevaluation

Other comprehensive income, net of tax, actuarial gains (losses) on defined benefit plans19p120h, 1p91, 1p82gOtherPlans

Income (expense) recognised in other comprehensive income relating to non-current assets or disposal group classified as held for saleIFRS 5p38IncomeForSale