Analysis of financial statement is based on past record because
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Answer:
Explanation:
Financial Statement is based on past record because important financial data on every aspect of a business’s activities without past record a company cannot made proper plan for future . Accounts Standard are fixed which cannot be apply on future record they need only past and current record sometime company consist to same accounting principle but sometime they want to change ,it cannot change without past or history knowledge. example a company follow accrual basis accounting but after sometime they want to change their method accrual to cash. it is possible only then when you have past record available. by using past and current record company Create three things in their final account .Statement of Profit & Loss, Balance sheet & Cash flow statement
Statement of Profit & Loss tells revenue against Expense by which we get finally what we earn or lost
Balance Sheet contain two main part assets & Liability by these thing we can understand company financing activity and other things very easily
Cash flow statement provides an overview of the whole company by operating, Financing & Investing Activity. Net Result or Net income transferred to the top of Cash flow statement. Investing Activity records non current asset and finanacing activity tell us about financing.
Now breakdown of some common ratio to understand more Quickly
Statement of Profit & Loss: gross profit Ratio, operating profit Ratio, Operating Profit Ratio, Earning per share net profit Ratio, and interest coverage Ratio
Balance Sheet: asset turnover, quick ratio, receivables turnover, days to sales, debt to assets, and debt to equity
Cash flow statement provide us : Net Profit Before interest, tax, , depreciation and amortization
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