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CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis :  The Central Board of Secondary Education (CBSE) is a Board of Education for public and private schools, under the Union Government of India. CBSE affiliates all Kendriya Vidyalayas, all Jawahar Navodaya Vidyalayas, private schools and most of the schools approved by central government of India. CBSE conducts the final examinations for Class 10 and Class 12 every year. The CBSE envisions a robust, vibrant and holistic school education that will engender excellence in every sphere of human endeavour. The Board is committed to provide quality education to promote intellectual, social and cultural vivacity among its learners. It works towards evolving a learning process and environment, which empowers the future citizens to become global leaders in the emerging knowledge society. The Board advocates Continuous and Comprehensive Evaluation with an emphasis on holistic development of learners. The Board commits itself to providing a stress-free learning environment that will develop competent, confident and enterprising citizens who will promote harmony and peace.

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : Here our team members Provides CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details. CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details Included Two  units. These  CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details Complete Details Has Two unit it included some topics those are under given following Steps :

Part B: Financial Statement Analysis

Unit 3: Analysis of Financial Statements

Financial statements of a company: Statement of Profit and Loss and Balance Sheet in the prescribed form with major headings and sub headings (as per Schedule III to the Companies Act, 2013).
Financial Statement Analysis: Objectives, importance and limitations.
Tools for Financial Statement Analysis: Comparative statements, common size statements, cash flow analysis, ratio analysis.
Accounting Ratios: Objectives, classification and computation.
Liquidity Ratios: Current ratio and Quick ratio.
Solvency Ratios: Debt to Equity Ratio, Total Asset to Debt Ratio, Proprietary Ratio and Interest Coverage Ratio.
Activity Ratios: Inventory Turnover Ratio, Trade Receivables Turnover Ratio, Trade Payables Turnover Ratio and Working Capital Turnover Ratio.
Profitability Ratios: Gross Profit Ratio, Operating Ratio, Operating Profit Ratio, Net Profit Ratio and Return on Investment.

Unit 4: Cash Flow Statement

Meaning, objectives and preparation (as per AS 3 (Revised) (Indirect Method only)

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : Accountancy or accounting is the job of sharing financial information about a business to managers and shareholders (people who have invested in the business). Accounting is often called the “language of business”. Accountants are people who do accounting, and also carry out the auditing or checking of a company’s books and records. In Britain, this auditing is often carried out by a qualified person called a “chartered accountant”.

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : 

CBSE Class 12 Commerce Accountancy Analysis Of Financial Statements

Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company’s financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity. Financial statement analysis is a method or process involving specific techniques for evaluating risks, performance, financial health, and future prospects of an organization.[1]

It is used by a variety of stakeholders, such as credit and equity investors, the government, the public, and decision-makers within the organization. These stakeholders have different interests and apply a variety of different techniques to meet their needs. For example, equity investors are interested in the long-term earnings power of the organization and perhaps the sustainability and growth of dividend payments. Creditors want to ensure the interest and principal is paid on the organizations debt securities (e.g., bonds) when due.

Common methods of financial statement analysis include fundamental analysis, DuPont analysis, horizontal and vertical analysis and the use of financial ratios. Historical information combined with a series of assumptions and adjustments to the financial information may be used to project future performance. The Chartered Financial Analyst designation is available for professional financial analysts.

Download here CBSE Class 12 Commerce Accountancy Analysis Of Financial Statements Notes

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : 

CBSE Class 12 Commerce Accountancy Financial Statements Of A Company

Financial statements (or financial report) is a formal record of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form easy to understand. They typically include basic financial statements, accompanied by a management discussion and analysis:

  1. A balance sheet or statement of financial position, reports on a company’s assets, liabilities, and owners equity at a given point in time.
  2. An income statement or statement of comprehensive income, statement of revenue & expense, P&L or profit and loss report, reports on a company’s income, expenses, and profits over a period of time. A profit and loss statement provides information on the operation of the enterprise. These include sales and the various expenses incurred during the stated period.
  3. A Statement of changes in equity or equity statement or statement of retained earnings, reports on the changes in equity of the company during the stated period.
  4. A cash flow statement reports on a company’s cash flow activities, particularly its operating, investing and financing activities.

For large corporations, these statements may be complex and may include an extensive set of footnotes to the financial statements and management discussion and analysis. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements.

Download here CBSE Class 12 Commerce Accountancy Financial Statements Of A Company Complete Information in PDF Format 

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : 

CBSE Class 12 Commerce Accountancy Tools For Financial Statement Analysis

Financial analysis tools are one of the most efficient ways that can be used for ensuring good profit from your investments. These financial analysis tools are highly helpful in evaluating the market and investing in a way so as to maximize the profit from the investments made. These financial analysis tools are useful for deciphering both internal and external information related to a specific business organization.

Financial Analysis is defined as being a process of identifying financial strength and weakness of a business by establishing relationship between the elements of the balance sheet and the income statement. The information pertaining to the financial statements is of great importance through which interpretation and analysis is made. It is through the process of financial analysis that the key performance indicators, such as, liquidity solvency, profitability as well as the efficiency of operations of a business entity may be known, while short term and long term prospects of the business may be evaluated. Thus, identifying the weakness, the intent is to arrive at recommendations as well as forecasts for the future of a business entity. Financial analysis focuses on the financial statements as they are a disclosure of a financial performance of a business entity. “A Financial Statement is an organized collection of data according to logical and consistent accounting procedures.

Applications of Financial Analysis Tools

Mainly, the financial analysis tools can be used for SWOT analysis. The term SWOT is short for:

S – Strength
W – Weaknesses
O – Opportunities
T – Threats

Download here CBSE Class 12 Commerce Accountancy Tools For Financial Statement Analysis Study Material in PDF Format 

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : 

CBSE Class 12 Commerce Accountancy Accounting Ratios Complete Notes

Accounting ratios assist in measuring the efficiency and profitability of a company based on its financial reports. Also called financial ratios, accounting ratios provide a way of expressing the relationship between one accounting data point and another, which is intended to provide a useful comparison. Accounting ratios form the basis of fundamental analysis.

Download here CBSE Class 12 Commerce Accountancy Accounting Ratios Complete Notes in PDF Format 

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : 

CBSE Class 12 Commerce Accountancy Liquidity Ratios Complete Notes

Liquidity ratios measure a company’s ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio and operating cash flow ratio. Current liabilities are analyzed in relation to liquid assets to evaluate the coverage of short-term debts in an emergency. Bankruptcy analysts and mortgage originators use liquidity ratios to evaluate going concern issues, as liquidity measurement ratios indicate cash flow positioning.

BREAKING DOWN ‘Liquidity Ratios’

Liquidity ratios are most useful when they are used in comparative form. This analysis may be performed internally or externally. For example, internal analysis regarding liquidity ratios involves utilizing multiple accounting periods that are reported using the same accounting methods. Comparing previous time periods to current operations allows analysts to track changes in the business. In general, a higher liquidity ratio indicates that a company is more liquid and has better coverage of outstanding debts.

Alternatively, external analysis involves comparing the liquidity ratios of one company to another company or entire industry. This information is useful to compare the company’s strategic positioning in relation to its competitors when establishing benchmark goals. Liquidity ratio analysis may not be as effective when looking across industries, as various businesses require different financing structures. Liquidity ratio analysis is less effective for comparing businesses of different sizes in different geographical locations.

Download here CBSE Class 12 Commerce Accountancy Liquidity Ratios Complete Notes in PDF Format 

CBSE Class 12 Commerce Accountancy Solvency Ratios Complete Information

The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken. The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb. The amount of premium written is a better measure than the total amount insured because the level of premiums is linked to the likelihood of claims. Different countries use different methodologies to calculate the solvency ratio, and have different requirements. For example, in India insurers are required to maintain a minimum ratio of 1.5.

A measure of a company’s ability to service debts, expressed as a percentage. It is calculating by adding the company’s post-tax net profit and depreciation, and dividing the sum by the quantity of long-term and short-term liabilities; the resulting amount is expressed as a percentage. A high solvency ratio indicates a healthy company,while a low ratio indicates the opposite. A low solvency ratio further indicates likelihood of default. Different industries have different standards as to what qualifies as an acceptable solvency ratio, but, in general, a ratio of 20% or higher is considered healthy. Potential lenders may take the solvency ratio into account when considering making further loans.

The solvency of an insurance company corresponds to its ability to pay claims. The Solvency ratio is a way investors can measure the company’s ability to meet its long term obligations An insurer is insolvent if its assets are not adequate [over indebtedness] or cannot be disposed of in time to pay the claims arising. In other words, it is the extra capital that an insurance company is required to hold. As per the IRDA (Assets, Liabilities, and Solvency Margin of Insurers) Rules 2000, both life and general insurance companies need to maintain solvency margins.

life insurance companies are expected to maintain a 150% solvency margin. The higher the ratio is the better equipped a company is to pay off its debts and survive in the long term. All insurance companies have to pay claims to policy holders. These could be current or future claims of policy holders. Insurers are expected to put aside a certain sum to cover these liabilities. These are also referred to as technical provisions. Insurance, however, is risky business and unforeseen events might occur sometimes, resulting in higher claims not anticipated earlier. For instance, calamities like the Mumbai floods, J&K earthquake, fire, accidents of a large magnitude, etc may impose an unbearable burden on the insurer.

Download here CBSE Class 12 Commerce Accountancy Solvency Ratios Complete Information in PDF Format 

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis : 

CBSE Class 12 Commerce Accountancy Activity Ratios Complete Information

Activity ratios measure a firm’s ability to convert different accounts within its balance sheets into cash or sales. Activity ratios measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items and are important in determining whether a company’s management is doing a good enough job of generating revenues and cash from its resources.

Download here CBSE Class 12 Commerce Accountancy Activity Ratios Complete Information in PDF Format 

CBSE Class 12 Commerce Accountancy Profitability Ratios Complete Information

Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios, which are used to determine the company’s bottom line and its return to its investors. Profitability measures are important to company managers and owners alike. If a small business has outside investors who have put their own money into the company, the primary owner certainly has to show profitability to those equity investors.

Profitability ratios show a company’s overall efficiency and performance. Profitability ratios are divided into two types: margins and returns. Ratios that show margins represent the firm’s ability to translate sales dollars into profits at various stages of measurement. Ratios that show returns represent the firm’s ability to measure the overall efficiency of the firm in generating returns for its shareholders.

Download here CBSE Class 12 Commerce Accountancy Profitability Ratios Complete Information in PDF Format 

CBSE Class 12 Commerce Accountancy Part B Financial Statement Analysis Complete Details

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