Question

Please write 4 paragraphs with each paragraph containing 50-60 words.

Imagine that you are the financial manager of Clark Pediatrics Center and you have a meeting with the board of directors in a month. You need to create a financial analysis of the organization. You have also been asked to compare Clark Pediatrics to other pediatric healthcare organizations in the area to create a trend comparison.

• What must you do to complete a financial analysis?
• What information do you need for both horizontal and vertical analysis?
• What sources can you use for comparison?
• What decisions can be made regarding this information?

Answer 1

Solution:

INTRODUCTION:The basis for financial anyalsis planning and decision making is financial statement consis of balance Sheet, Profit & Loss account but Balance sheet and P& L account does not show all necessary information. For Ascertain financial strength and weakness of an enterprise , it is necessary to analyse the data depicted in financial statement.

(1) MUST DO TO COMPLETE FINANCIAL ANALYSIS:

A) Collect the Company's Financial statements from last 3 to 5 years:

Balance sheet

Income Statement

Cash Fow statements

B) Assess the quality of Finacial statements like relevant accounting standard.

C) Prepare forecasted financia statement: Financial professional make reasonable assumption about future of the firm and determine how this assuption impact the cash fow and funding

D) Ratio Anaylsis is also techinque to compare the  number against previous year for purpose of financial analysis

(2) Information do you need for both horizontal and vertical analysis:

Horizontal Anyalsis: When financial statement of one year are analysed and interpreted after comparing with another year it is known as horizontal anaylsis . It is based on the ratios derived from financial information over the same time span .I it is useful to find Trend

Example: Comparative statement

Particulars	2017-18	2018-19	Absolute change	%
Revenue from operation	1000000	1500000	500000	50
Add: other incomes	200000	300000	100000	50
Total Revenue	1200000	1800000	600000	50
Less: Expenses	700000	900000	200000	28.57
Profit before Tax	500000	900000	400000	80
Less: Tax	90000	120000	30000	33.33
Profit After Tax	410000	780000	370000	90.24

Formula

Absolute Change/Base year aboslute figure*100

vertical analysis:    Financial statement of Single year is  analysed then it is called vertical anaylsis. This is useful in interfirm comparison. everyitem of P&L is expressed as % of gross sale while every item on balance sheet is expressed as % of total sale held by firm. it is known as common Size

For Example

Particular Absolute Amount % of Net sale

	2017-18	2018-19	2017-18	2018-19
Net sales	2000000	2500000	100	100
Less: Cost of Goods sale	1000000	1200000	50	48
Gross Profit	1000000	1300000	50	52
Less: Operating Expenses	200000	350000	10	12
Operating income	800000	950000	40	38
Less: Non operating Expenses	150000	200000	7.5	8
Add: non- operating Income	100000	120000	5	4.8
Profit before Tax	750000	870000	37.5	34.8
Less: Tax	80000	110000	4	4.4
Profit After Tax	670000	760000	33.5	30.4

Formula:

Individual item/ net sale*100

(3) Sources can you use for comparison

Annual Reports

Interim Financial Statement

Notes to accounts

Cash flow statement

Business periodicals

Credit and investment advisory services

(4) Decisions can be made regarding this information:

Investing and lending: Whether a person should invest in company or not it can find with help of analysis of various methods like with help of horizontal anaysis, vertical analysis

Liqudity decision: Main purpose minimzing idle cash and reduce cost of surplus cash

Profitability: A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations

Conclusion: SO in the end we can say financial manager has to keep all points in mind whie Finacial Analysis because if anyalsis done with proper way then firm can ean good profit