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Types of Financial Analysi1

Internal analysis is conducted by top management with help from accountants to assess overall performance and profitability of operations. External analysis is done by outsiders like shareholders, banks, and government who rely on published financial statements for their differing objectives. Short term analysis primarily focuses on working capital and liquidity through current assets and liabilities ratios to forecast earnings ability and dividend policy. Long term analysis examines fixed assets, leverage, ownership structure and ensures minimum return on investment for company growth.

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36 views

Types of Financial Analysi1

Internal analysis is conducted by top management with help from accountants to assess overall performance and profitability of operations. External analysis is done by outsiders like shareholders, banks, and government who rely on published financial statements for their differing objectives. Short term analysis primarily focuses on working capital and liquidity through current assets and liabilities ratios to forecast earnings ability and dividend policy. Long term analysis examines fixed assets, leverage, ownership structure and ensures minimum return on investment for company growth.

Uploaded by

parth
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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TYPES OF FINANCIAL ANALYSIS

1. Internal Analysis

Internal analysis is made by the top management executives with the help of Management Accountant. The
finance and accounting department of the business concern have direct approach to all the relevant financial
records. Such analysis emphasis on the overall performance of the business concern and assessing the
profitability of various activities and operations.

2. External Analysis

Shareholders as investors, banks, financial institutions, material suppliers, government department and tax
authorities and the like are doing the external analysis. They are fully depending upon the published
financial statements. The objective of analysis is varying from one party to another.

3. Short Term Analysis

The short-term analysis of financial statement is primarily concerned with the working capital analysis so
that a forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities – both
current and long term and probability of a sound dividend policy.

A business concern has enough funds in hand to meet its current needs and sufficient borrowing capacity to
meet its contingencies. In this aspect, the liquidity position of the business concern is determined through
analyzing current assets and current liabilities. Hence, ratio analysis is highly useful for short term analysis.

4. Long Term Analysis

There must be a minimum rate of return on investment. It is necessary for the growth and development of
the company and to meet the cost of capital. Financial planning is also necessary for the continued success of
a company. The fixed assets structure, leverage analysis, ownership pattern of securities and the like are
made in the long-term analysis.

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