Financial statement analysis involves, comparing the performance with that of other firms in the same industry and evaluating trends in the firm's financial position over time. These studies help management identify deficiencies and then take actions to improve performance.
For evaluating the financial performance of the firm ratio analysis and Du Pont system are used. According to Fraser, L. (2001) & Ormiston, A. (2001) the subordinate classifications of ratio analysis are:
According to Fraser, L. (2001) & Ormiston, A. (2001) The available cash resources to satisfy the current obligations must come primarily from cash or the conversation to cash from of other current asset. For interpreting the liquidity of the firm, several types of ratios have been depicted. Current ratio, quick ratio, cash flow liquidity measures the firm's short-term solvency. Firm's ability to meet the current obligations can be judged. Liquidity position or effects of using debt can be evaluated. The available cash resources to satisfy the current obligations must come primarily from cash or the conversation to cash from of other current asset. To judge the long-term financial position of the firm, financial leverage ratios are used. Brigham, E. (2007) & Houston, J. (2007) mentioned that these ratios indicate mix of funds provided by owner and lender. According to Fraser, L. (2001) & Ormiston, A. (2001) the amount and proportion of debt in a company's capital structure is extremely important because of the trade off between risk and return. Gross profit margin, operating profit margin, and net profit margin represent the firm's ability to translate sales dollars into profits as different stages of measurement. Administrative efficiency can be judged through this. Brigham, E. (2007) & Houston, J. (2007) assessed the fixed asset turnover ratio measures how effectively the firm uses its fixed assets and total asset turnover measures the turnover of the entire firm's asset. So, Debt ratio, debt to equity ratio, long tem debt to total capitalization ratio have been drawn.
Liquidity Ratio: Short-term Solvency
Year before last
Cash flow liquidity
The current ratio of the firm indicates that at the end of year current asset covered current liabilities 1.13