Evaluating Financial Statement Data is concerned with depicting out the true figures and facts of the company which also helps to determine its value.
When a question arises that where the company stands?
How many Profits/Losses they have incurred during the annual year?
In such that case major analyses take place which is also known as ‘Horizontal and Vertical Data’ Analysis.
Where Horizontal analysis shows the change in amounts or data over the period in numeric terms. Such Analysis may include the change in terms of revenues and expenditures, where the previous year and current year data is undertaken and with the help of which results takes place.
However, Vertical Analysis states the changes in form of Percentage to make a comparison of data with past years.
Difference of Horizontal and Vertical is- The way of determining the results.
No doubt both measures may be considered comparisons but for evaluating the change different methods are used one may use Percentage method and other data analysis. Business firms commonly undertake this analysis in form of Balance Sheet as well as Income Statement.
Where Income Statement includes two basic terms:
Balance Sheet includes:
Accounting Data is summarized in form of these Financial Accounts, hence they clearly help the business organizations for interpreting significant outcomes.
Evaluation in the Financial system takes place with the help of common Tools which include:
- Trend Analysis which helps to evaluate the degree of change in accounting figures over the years.
- Ratio Analysis acts as an important measure to evaluate the performance of business with the help of accounting tools and different ratios.
Comparative Financial Statements makes a comparison of Financial Statements with the previous and current year so that change in growth and position of a company can be summarized. Such Comparison is done in two ways –
- Comparative Financial Statement
- Common Financial Statement.
To evaluate the position of business with the help of Financial Statements, the Ratio Analysis takes place, different types of Ratios helps the business to determine their position. The common ratios used by every Organization are-
- Short Term Ratios
- Profitability Ratio Evaluation
- Debt Management Ratios
- Market Value Ratios
Mathematical Calculations are done for knowing the values and expressions of Ratios which clearly shows the position of Companies. The ratio analysis plays significant role because they may categorize business in different area and then evaluation is done, however, the basic purpose of these ratios is to know the Financial Position of the Company, Profitability, and Soundness of Business firms, Solvency Position, and all such interpretation helps a
- Financial Position of the Company
- Profitability & Soundness of Business firms
- Solvency Position
and all such interpretation helps a business to:
- To grow to get more profits
- To make investments
- To take business decisions
- To carry out the best business practices
The blog may involve all the above factors which are showing the importance of Evaluating Financial Statements and their results. Thus the assessment may give both short term as well as Long term Implication to the Business as they can change their operational and fixed operational activities.