This Chapter explains the calculation and interpretation of common size balance sheets as well as common size income statements. may not be the controlling parties; therefore, a consolidation model is provided to identify the controlling party. The latter is again defined as the sum, When values of this ratio are high, it means that the, more short-term assets to cover short-term liabilities which me. A) Common-size balance sheet shows relative value of the various items. To potential investors, the analysis of the financial statements of the company is very important, because, first they want to know the actual state of the company and then decide whether to invest or not. A cash flow is "bloodstream" of business and without constant cash flow a company would not be able to function. A brief explanation of the tools or techniques of financial statement analysis presented below. Separate comparative statements are prepared for Profit and Loss Account as Comparative Income Statement and for Balance Sheets. Because of the different things that financial statement analysis can tell you about including profits, liquidity, debt, and which areas of the business generate the most revenue or loss, you will want to choose the financial statement analysis technique that can fit your purposes and help you answer the questions specific to your business. Beside, it also provides inputs to accounting standard setter regardingthe role of accounting measurement concept in decision making by user of accounting information,especially investors. Financial statements analysis is an attempt to determine the significance and meaning of the financial statements data, which measure the enterprise’s liquidity profitability, forecast may be made of the future earnings, solvency and other indicators to assess its operating efficiency, financial position and performance. Variance These accounting analysis tools utilize ratios and make year-to-year comparisons to look for positive and negative trends. ... 746-778). Copyrights Copyright for this article is retained by the author(s), with first publication rights granted to the journal. 1. Reliability of Figures. This shows that the better the local financial accounting system, the resulting financial statements will also increase. Pros – It helps to analyze the growth of the company from year on year or quarter on quarter with the increase in operations of the company. Data collection is done by survey method through questionnaires distributed to respondents who are in finance or accounting, The balance sheets of lenders, sponsors, servicers, managers, and investors in structured finance transactions are likely to change as a result of the accounting amendments recently issued by the Financial Accounting Standards Board (FASB).