Financial Statements Analysis — Flashcards
Telangana Open School (TOSS) · Class 12 · Accountancy
30 flashcards for Financial Statements Analysis (Telangana Open School (TOSS) Class 12 Accountancy) to test yourself on key terms and facts.
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What is financial statement analysis?
Answer
Financial statement analysis is the process of establishing a meaningful relationship between various items in the financial statements (like Balance Sheet and Statement of Profit & Loss) to assess th…
Why is financial statement analysis important?
Answer
It helps in: - Measuring profitability and return on investment - Assessing liquidity and solvency - Identifying trends in sales, expenses, and profits - Comparing performance with other firms - Evalu…
What are the limitations of financial statement analysis?
Answer
Key limitations include: 1. Based on historical data, so limited for forecasting 2. Affected by window-dressing (manipulation of figures) 3. Different accounting policies reduce comparability 4. Ignor…
Who are the main parties interested in financial statement analysis?
Answer
Key users include: - Investors (assess returns) - Creditors and lenders (check repayment ability) - Management (decision-making) - Employees (job security) - Tax authorities (verify tax) - Government …
Define Comparative Financial Statements.
Answer
Comparative financial statements present financial data for two or more periods side by side to show changes in absolute amounts and percentages. They help identify trends in assets, liabilities, sale…
What is a Comparative Balance Sheet?
Answer
A Comparative Balance Sheet shows the assets and liabilities of a company for two or more periods side by side. It includes columns for: - Previous year - Current year - Absolute change (increase/decr…
How do you calculate absolute and percentage change in a comparative statement?
Answer
Formulas: - Absolute Change = Current Year Value – Previous Year Value - Percentage Change = (Absolute Change / Previous Year Value) × 100 Example: If sales increased from ₹5,00,000 to ₹6,00,000: Abso…
What is a Common Size Statement?
Answer
A Common Size Statement expresses each item in the financial statement as a percentage of a common base: - In Balance Sheet: Each asset/liability as % of total assets/liabilities - In Income Statement…
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