Financial Statement Analysis: Procedure, and Method

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Analyzing financial statements is important to do so that business or company financial data can be utilized in supporting decisions that will be taken by both management and external parties who have an interest in the company. There are several factors that must be considered to be able to know the financial statement analysis techniques. Therefore, an analyst must master the process of preparing financial statements, the business environment to be analyzed, concepts, characteristics of financial statements, and financial statement analysis techniques. Know what the objectives of financial statement analysis are, and how the methods and techniques used to analyze financial statements.

The Purpose of Financial Statement Analysis

The main objectives of the analysis of financial statements are as follows:

Analysis of financial statements is used as a benchmark for projecting financial position in the future.
To observe the company’s condition, problems in management, operations and finance.
As a measuring tool for efficiency in all departments of the company.
Financial Statement Analysis Procedure
There are several steps that must be taken in analyzing financial statements. The steps that must be done are as follows:

Understand the background of company financial data, including understanding of the business fields and accounting policies adopted and implemented by the company.
Understanding the conditions that affect companies, including information about trends or trends in the industries in which companies operate such as changes in technology, changes in consumer tastes, and changes in economic factors such as changes in per capita income, interest rates, inflation and tax rates. In addition, pay attention to changes that occur within the company itself, such as changes in key management positions.
Studying and observing financial statements thoroughly. The purpose of this step is to ensure that the financial statements are clear in describing relevant financial data and in accordance with financial accounting standards.
Analyze financial statements and interpret the results of the analysis.

Financial Statement Analysis Method

There are 2 methods for analyzing financial statements that need to be known and understood, namely:

Horizontal Analysis, namely the analysis of financial statements by comparing financial statements for several periods or several moments. So that its development can be known.
Vertical Analysis, also called a static analysis method because the conclusions obtained are only for that period without knowing its development. Vertical analysis is used if the financial statements analyzed cover only one period, or at any one time by comparing one item with another item in the financial statements. So that it will be known the financial situation or the results of operations at that time.

Financial Statement Analysis Techniques

In analyzing the financial statements of a business or company, there are several techniques that can be used as benchmarks to assess the company’s financial position. Among them are as follows:

1. Growth analysis techniques
This technique is an analysis technique compiled by comparing the increase or decrease in the position of financial statements in a certain period with other periods of each item contained in the report by using a percentage value. The data presented is to compare the increase or decrease of each financial statement post last month with the current month. Or in the Year to Date period, which is the same period last year with the current year.

2. Trend and index techniques
That is an analysis technique that is almost the same as the growth analysis method. But the numbers used for comparison are certain periodic financial statements which are indexed and selected as base years. This trend technique is very useful for projecting financial statements in the future using historical data.

3. Ratio analysis techniques
Namely the analysis technique by comparing each of the relevant financial statement items or significant data.

The beginning of the analysis process is needed to analyze a financial statement, and each method of analysis has the same goal, namely to make the data more understandable. So it can be used as a basis for decision making for those who need it. The methods and techniques of financial statement analysis are used to determine and measure the relationship between the items in the report.

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