Question

In financial statement analysis, what is the reason for peer (industry) analysis and what is the reason for trend analysis?

Answer 1

Reason for Peer (Industry) analysis:

• Provide requisite knowlege about the firm’s growth potential, competition, and specific risks
• Help determine the industries trajectory and the overall prospects of performanccan
• Both the above two factors helps us understand business environment and more broadly determine potential sources for return

• It further helps us in taking better economic decision taking power with respect to capacity expansion decision by reviewing the demand factor, working capital cycle, growth prospects etc.

Reason for Trend Analysis

Trend analysis helps to improve the organisation business through identification of  areas of organisation that are doing well, as well as those areas which are not doing well. Further, it provides valuable evidence to help inform better decision making around your longer-term strategy as well as ways to futureproof your business.

The trends most organisations normally zone in on are focused around:

• Key performance indicators (KPIs):
  Tracking against the companies own measures of success. Mesure variables can vary from  from increased sales, to a reduction in manufacturing costs or even improved market share.  
  
• Financials:
  It helps us to identify the cash flow and fund flow needs of business.