Analysis of Financial Statements — Important Questions

Comparative Statements, Common Size Statements, Trend Analysis, Ratio Analysis, Cash Flow Analysis

The five main techniques of financial analysis are: Comparative Statements, Common Size Statements, Trend Analysis, Ratio Analysis, and Cash Flow Analysis. Balance Sheet Preparation is not an analysis technique but a process of creating financial statements.

(Current Year - Previous Year) / Previous Year × 100

The percentage change is calculated by taking the difference between current and previous year, dividing by the previous year (base year), and multiplying by 100. This shows the percentage increase or decrease from the base year.

Does not consider price level changes, Ignores non-monetary aspects, May be affected by window dressing, Based on historical data

Financial analysis has several limitations: it doesn't consider inflation/price changes, ignores qualitative factors, can be misleading due to window dressing, and is based on historical data. It does not provide 100% accurate predictions.

Comparing companies of different sizes

Common size analysis is particularly useful for comparing companies of different sizes because it converts all figures to percentages, making it possible to compare the relative importance of different items regardless of company size.