Literature Review of Financial Statement Analysis

Document Sample
Literature Review of Financial Statement Analysis Powered By Docstoc
					Literature Review of Financial Statement Analysis
Abstract: The financial analysis is financial statement analysis,
corporate financial statements by providing an analysis of accounting
data to assess the enterprise value, to predict the future development of
enterprises, which make a reasonable decision. Financial statements, a
comprehensive, systematic and comprehensive record of the business
brokerage business trajectory occurred, the relevant interests of the
people become increasingly concerned about its analysis. Firstly, the
financial statements of a literature review, from the definition and
content of financial statements, analyzing financial statements of the
subject, object and purpose of the analysis of the financial statements
of the principles and steps, on the reviewed financial reports of listed
companies .
Keywords: listed companies, financial reporting, comprehensive analysis,
Du Pont system
With the deepening of China's reform and opening up more and more
companies go to the public markets, and financial statements have been
more and more people are concerned. The financial statements of listed
companies to provide users a variety of statements reflecting the
company's operation and financial position of the various diff erent data
and related information, but for different users of financial statements
to read statements have different emphases. Social advancement and the
rapid development of the economy today, listed companies closer to
people's lives, through the right balance sheet, income statement and
cash flow analysis, Ke Yi to help many investors, tax authorities, Law,
Shen Zhi enterprise managers to make important decisions. In this case,
separation of ownership and management has become an inevitable trend of
development of enterprises, while the right two separate listed companies
is the representative. Listed company's shareholders, creditors and other
related requirements of external stakeholders to understand the company's
operating condition, we should by analyst firm disclosed the information,
which makes the financial statements and financial statement analysis is
a necessity. Financial statements are accounting information system,
through accounting and financial information and other means of financial
statements expressed in the form of financial reports on the financial
situation, is the business results of the static and dynamic information.
Among the listed information disclosed in financial statements has been
the focus of stakeholders. Financial analysis refers to the financial
statements and other information as the basis and starting point, using
special methods of analysis and evaluation of past and present business
operating results, financial situation and its changes, the purpose is to
understand the past, the evaluation is to predict the future, to help the
interests of Relations Group to improve the decision-making. Foreign
issued financial statements is based on the general requirements of all
users of the design, so, report the user to select from the information
they need to rearrange and to study their mutual relations, so as to meet
specific policy requirements. Users to report relevant financial
information to provide the basis for their decisions. But the financial
statements are a series of data to a comprehensive and generally reflect
the financial position, operating results and cash flows. Users of the
report, these data are raw, preliminary, still can not directly for
decision-making. This review to the financial statements of the
definition, content-based, through a number of accounting, finance and
other related categories of knowledge and scholars in recent years of
related work, theory to explain and elaborate.
First, the definition of the financial statements and related content
(A), the definition of the financial statements
New York State Bankers Association in February 1898 the Commission put
forward a motion asking that all borrowers must submit signed by their
balance sheet to measure the company's credit and solvency, in 1923 the
United States, White Ellis (James Bliss) published "The management
of financial and operating ratios," in which he proposed and
established standards of the industry average ratio of horizontal to
facilitate people's financial comparison business. 1921 Gilman (Gilman)
published a famous work "outstanding financial analysis," he
pointed out that the ratio analysis can not overestimate the role,
because the financial ratios and the relationship between the balance
sheet seems difficult to clear. Financial statements, also known as
external accounting statements reflect the accounting entity to provide
both financial and operational accounting entity accounting statements,
including balance sheet, income statement, cash flow or financial
situation changes in tables, schedules and notes. Financial statements
are the main part of the financial report, the report does not include
the directors, management, analysis and financial situation, etc. in the
financial report or annual report information. Foreign reports i.e.
financial statements. Symmetric internal report, based on accounting
standards to regulate the establishment, to the owners, creditors,
governments and other interested parties and the public and other
external users of financial statements disclosed.
(B), the definition of Financial Statement Analysis
Financial Statement Analysis, also known as financial analysis, is
through the collection, collation corporate financial accounting report
of the relevant data, and other relevant Buchongxinxi ½áºÏ, right
enterprise's financial situation, business results and cash flows
Qingkuangjinxing comprehensive comparison and evaluation, Wei Finance
management accounting reports provide users a basis for decision-making
and control of management.
(C), the composition of the financial statements
1, the balance sheet

Including: assets and liabilities, equity 3. Which assets include:
current assets, long-term investment, fixed assets, intangible assets and
other assets. Liabilities include current liabilities and long-term
liabilities, owner of the public, including paid -in capital, capital
surplus, earned surplus and undistributed profits. Of course, current
assets, current liabilities, fixed assets should be divided into so many
of its subheadings not repeat them here. Here is the equation is assets =
liabilities + owner's equity.

2, the income statement

Main Business Revenue - Operating Costs - Operating costs - sales tax and
additional profits = sales; sales profit + other operating profits -
management costs - financial costs = operating profit;
Operating profit + investment income + non-operating income - operating
expenses = total profits; gross profit - income tax = net profit

3, the financial statements of the cash flow statement is one of three
basic reports, also known as accounts of changes in conditions, expressed
in a fixed period (usually monthly or quarterly), the one institution in
cash (including cash equivalent) in the case of changes.

Second, the basic financial statements, ratio analysis

Ratio analysis method is based on the financial statements for the same
period a number of important items on the comparability of the relevant
data, find Bilv, to analyze and evaluate companies in the Jing Ying
Huodongyiji company He Lishizhuangkuang the way is the most basic of
Gongju financial Fenxi . Because of the different objectives of financial
analysis, which included a variety of creditors, management, government
agencies have taken the focus is different. As stock investors, mainly to
master and apply the four ratios that reflect the company's profitability
ratios, solvency ratios, growth capacity ratio, liquidity ratio of the
four categories of financial ratios.

(A), ratio analysis of financial statements mainly include four aspects

1, profitability analysis

Commonly used indicators are:

ROE = net profit / average net assets

The total return on assets = net profit / average total assets

Operating profit margin = gross profit / net ope rating income

The larger of these three indicators, the stronger profitability.

2, solvency analysis

Current Ratio = current assets / current liabilities, the index should be
greater than 1, otherwise the corporate short-term liquidity problems,
the best value of 2 or more. Quick ratio = liquid assets / current
liabilities, of which liquid assets = current assets - Inventories -
Prepaid expenses, the indicator is better than one. Asset -liability ratio
= Total liabilities / total assets, compared with industry averages.

3, liquidity analysis

????????Liquidity ratio is the ratio of known activity effect of company
The index, which molecular typically sales or cost of sales, the
denominator exists, one
Assets subject composition.
(1), accounts receivable turnover. The formula for the accounts
receivable turnover ratio = sales revenue (the end of the beginning
accounts receivable + accounts receivable) = sales revenue on average
accounts receivable accounts receivable is not obtained because of cash
sales, so, This ratio can detect the amount is reasonable and the
company's accounts receivable collection inefficiency. The annual
turnover ratio is the number of accounts receivable. If the number of
days a year that is 365 days divided by the receivables turnover ratio,
we find the accounts receivable transferred once a week, how many days
needed, that the average accounts receivable into cash required. The
algorithm: average time = accounts receivable realization a year the
number of days accounts receivable turnover accounts receivable turnover
ratio in the higher number of days a week switch to the shorter time
required, that the faster the company billing should be accounts
receivable included in the old account and the account of the smaller
priceless. On the contrary, turnover rate is too small, once the required
number of days a week is too long to switch, then that company is too
slow realization of accounts receivable and accounts receivable
management inefficiency.
(2), inventory turnover. The formula is as follows: Inventory Turnover =
Cost of sales (opening stock + closing stock) = average cost of sales of
goods intended to stock inventory sales and profits, and thus between the
company's inventory and sales, must maintain a reasonable rate. Inventory
turnover is the ability to measure the strength of the company sales and
inventory excess or shortage of whether the indicators. The higher the
ratio, indicating faster inventory turnover, the company's ability to
control inventory more strong, the greater profit margins, working
capital investment in the smaller amount of inventory. On the contrary,
it indicates that too much inventory, not only funding the backlog
affecting the liquidity of the assets, but also increased storage costs
and product loss, out of date.
(3), fixed asset turnover, its formula is: Fixed asset turnover = sales
income of the average cost In the annual turnover rate that Gudingzichan
times to detect the use of fixed assets, the efficiency of the company.
The higher the ratio, indicating that the faster turnover of fixed
assets, fixed assets, less idle; vice versa.
(4), capital turnover ratio, also known as net turnover. The formula is
as follows: capital turnover = sales revenue on average equity ratio of
the amount of use that can be analyzed relative to sales turnover, the
funds invested by shareholders if fully utilized. The higher the ratio,
indicating that the faster turnover of capital, using the higher the
efficiency. However, if the ratio is too high, said the c ompany too
dependent on leverage, that is, less equity capital. Lower capital
turnover rate, it indicates that the worse the company's capital
utilization efficiency.
(5), asset turnover, which is calculated as follows: Asset Turnover =
sales revenue total assets ratio is a measure of the company's total
assets are fully utilized indicators. Total assets turnover rate of
speed, efficiency means that the level of total assets.
Total assets turnover = sales revenue / average total assets, similar to
the flow can be calculated asset turnover, fixed asset turnover, the net
asset turnover and so on. Inventory Turnover = Cost of goods sold /
average inventory balance

Accounts receivable turnover ratio = Net credit sales / average accounts
receivable balances, which credit the main business income instead of net
used. Higher turnover rate index shows that the faster turnover of
assets, higher efficiency, stronger operational capabilities.

4, Growth of

???Growth capacity ratio can be used to detect the capacity of companies
to expand their operations. The solvency ratio, in a sense, also be used
to detect the capacity of companies to expand their operations. But
because of security gains, growth basis, the company solvency ratio
target is reasonable, sound financial structure to be possible to expand
operations, or, if the solvency weak, it is difficult to imagine that
companies have the energy to expand operation. As for the leverage ratio,
fixed assets to long-term debt ratio is even more outside the compa ny's
growth rate target. Companies with high leverage ratios, on the one hand
also shows that the high credibility, the creditor is willing to invest
in the company by borrowing more money expanding operations. And if the
high ratio of fixed assets to long-term debt, also shows that there is
spare capacity of its long-term debt to borrow more to expand the
business. Total assets of the asset growth rate = the amount of this year
/ beginning total assets

Reflect the company's expansion of business capacity ratios are:
(1), profit retention. The formula is: Profit = Net profit retention rate
- should be made after-tax profits of the dividend rate that the
company's after-tax profit (profit) of the number for the payment of
dividends, the number of retained earnings and expand business for. The
higher the ratio, indicating that companies with more emphasis on the
development of stamina, not to distribute dividends due to excessive
impact the company's future development; ratio lower, then that company
is not successful, had to spend more to make up for loss of profits or
dividends too much development potential is limited.
(2), re-investment rate, also known as internal growth rate. The formula
is as follows: re-investment equity = Net profit ¡Á shareholder profit -
dividends paid shareholders, return on capital earnings = earnings
retention rate ¡Á the ratio of shareholders that the company used the
proceeds to reinvest their earnings to support the company's ability to
grow. Formula shareholder profit retention rate of profits less dividends
paid the shareholders the difference between the ratio of profit to
shareholders. Shareholder profit refers to earnings per share and the
product of the number of ordinary shares issued, net income is actually
common stock.

Third, DuPont Analysis
DuPont analysis shows return on equity by three factors: operational
efficiency, measured with a profit margin; asset use efficiency, measured
using asset turnover; financial leverage, measured using the equity
(A), net profit margin of assets
Assets, net profit margin is net interest affecting rights and interests
of the most important indicators, and highly integrated, but it depends
on the sale of assets, net profit margin net profit margin and total
asset turnover of high and low. The total asset turnover reflects the
turnover rate of total assets. On the asset turnover analysis of need for
the various factors affecting the asset turnover analysis, in order to
determine impact of working capital assets of the company's main problem
lies. Sales net interest income reflects the level of sales. Expand sales
and reduce costs is to improve the fundamental way business profit
margins, while expanding sales, but also a necessary condition to improve
asset turnover and means.
(B), equity multiplier
Equity multiplier that extent of the liabilities of enterprises,
reflecting the company's use of financial leverage to the extent of
business activities. Rate assets and liabilities, equity multiplier on
the large, indicating a high degree of corporate liabilities, the company
will have more leverage interest, but the risk is high; the other hand,
low balance, equity multiplier on the small, the extent of company
liability low, the company will have less leverage interest, b ut the risk
borne by the corresponding low.
State of system strengths in financial analysis is simple, systematic and
feasible. However, with the development of the times, DuPont analysis
system gradually reveals its defects, is the core indicators " rights
and interests of net interest" in the decline in earnings quality.
Retaining the original advantages of this system, based on the
development of the original indicators proposed recommendations, such as
economic value added, and through down to every level, combined with the
balance sheet, income statement, cash flow statement to explain the
target surface to .

Fourth, financial analysis framework
(A), financial analysis is an important aspect of corporate governance,
if accounting is to collect basic data, then the financial analysis of
this data is further processed (s), interpretation is intended to explain
the company is now in digital operating conditions, certain company
experience, revealed the problems and lessons, to provide support for the
related personnel decisions.
(B), the primary means of financial management:
System building: he resolved a management principles, and the starting
Internal Audit: his solution is the system construction is reasonable -
the implementation of the effectiveness; execution efficiency is;
Budget management: real-time control, process control;
Financial analysis: including qualitative and quantitative analysis, he
comprehensively reflect the system construction,
Budget management problems that may exist.
The financial statements of listed companies to provide users a variety
of statements reflecting the company's operation and financial position
of the various different data and related information, but different
users of financial statements for the monthly statements have different
focuses, in general shareholders concerned about the profitability of the
company's founding shareholders, but shareholders are more concerned or
national solvency of the company, ordinary shareholders or potential
shareholders are more concerned about the company's prospects. In this
review, the theory by analyzing financial statements, the financial
statements of the indicators and methods and summarized the understanding
that the purpose of financial analysis is the ultimate goal of a
financial analysis, financial analysis, the ultimate goal is to make
users of financial statements a reliable basis for the relevant decision -
making. The purpose of financial analysis by the financial analysis of
the main constraints for the different financial analysis of the main
purpose of financial analysis is different. By one or more methods,
multi-rate analysis and comprehensive analysis of financial statements,
analysis of the pros and cons of this approach to find ways to compensate
for these shortcomings, the availability of financial reports. Although
the company's financial statements provides a large number of first -hand
information for analysis, but still he is a historical document, can be
summarized De reflect a period of time a company's financial condition
and operating results reflect this general not enough to investors as an
investment decision, as all the basis, it must be statements and other
statements in the data or unified restatement compared to other data, or
[1] Young red, 1994: "On the Western financial analysis,"
"Accounting Research", 1994 Eighth
[2] Chen prosperity, Gong Huiyun, 1996: "Building a modern
enterprise financial analysis school of thought", "Financial
Theory and Practice," the fifth in 1996
[3] Zhang Xinmin: "Financial Analysis", Tsinghua University
Press, 2000
[4] Li Xin-Hop, 2006: "Financial Analysis Framework and
Beyond," "Financial Issues", 2006 Tenth
[5] Xiao mirror element, 2004: "the establishment of several
problems of financial analysis," "Accounting Research",
2004 Ninth
[6] Chinese CPA Association, 2008: "financial and cost
management", Economic Science Press, 2008
[7] Zhao, 2008: "From the start of the DuPont earnings per share
analysis and application", "business development" of the
2008 16th
[8] Li Jianping, 2008: "Based on analysis of listed companie s,
DuPont System Research", "ACCOUNTING", 2008, the Seventh
[9] Zhang Xinmin, money loving, 2006: "Financial Statement
Analysis," Tsinghua University Press, 2006 Eighth
[10] Xiu: "Financial Accounting", Foreign Trade Un iversity
Press, 2003
[11] Huang Shizhong, 2007: "logical framework analysis of the
financial statements," Finance and Accounting, 2007 Tenth
[12] Song Yun-bolt, 2006: "Enterprise Asset Quality Analysis
Methods," "Market Modernization," 2006 Tenth
[13] Zhou Yahui, 2005: "Analysis of Profitability of Listed
Companies", "Economic Forum", 2005 Eighth
[14] Cheng Pei-first, 2007: "Corporate profitability analysis",
"a market modernization", 2007, Eighth
[15] Du Jinjiang, 2006: "Corporate Solvency indicators suggestions
for improvement," "Audit Monthly", 2006 Ninth
[16] Liu Min, Li Yu Jian, "Analysis of decision-making of corporate
cash flow business activities", "modern enterprise", the
seventh in 2007
[17] Yang Dehuai, 2005: "cash flow targets) financial analysis
system of the core", "accounting issue", 2005 Tenth
[18] Zhang Xian governance, 2008: "Based on management decis ion-
making and control of financial analysis reports for a financial analysis
of enterprise application", "accounting issue", the third
in 2008
[19] Cui also Light, 2003: "Financial Statement Analysis,"
"University Press", 2003, the 12th of
[20] Leopold. A. Bernstein and John. J. Wild Financial Statement
Analysis: Theory, Application and Interpretation. 1999 (49)
[21] Clyare. P. Stickney. Financial Statement Analysis and Valucati on: A
Strategic Perspective 1996
[22] Erich A Helfert Financial. Analysis: Tools and Techniques A Guide
for Managers 1997