Object Finance Analysis Forex

The main source of information or material to the financial and economic analysis, what are the financial statements are the result of a complex interplay of theory and accounting practice, with several social-economic influences, political and legal.

In its etymology the word state is derived from Latin “status” that indicates “situation in which there is a particular person or thing and each of the successive modes of being of a person or thing subject to changes affecting their status “.

As regards the term finance comes from the Latin “finis,” meaning “the term or performance of an obligation to give money.”

According to Name “Basic Financial Statements of Accounting, are reports that are used primarily to raise awareness of the situation or a company’s financial position at a particular time of his life, as well as the result of his business during an accounting period given”

Before directing attention to the techniques of analysis to be addressed in the next chapter, analysts should combine nature and quality of its raw material. The depth of analysis possible, the reliability and significance of the results are directly related to the accuracy and soundness of the financial statements themselves. The limitations of financial statements can be put on another plane analysis, some of which are inherent in the nature of financial accounting, below are some of them:

1) The currency is the unit of value used in the accounting and therefore reflected in financial statements, lack of stability, therefore its purchasing power is constantly changing, so it can be said that the figures of the financial statements absolutely do not represent actual values.

2) The ability of the management and efficiency of its decisions is not reflected in financial statements with an assigned value, so that it cannot be measured with the observation of these states.

3) Some properties on the financial statements are inherently stronger values in the market and therefore greater realization that the values assigned in the accounts.

4) in the accounts have been included accounting conventions, judgments and personal criteria that have combined in the presentation of the financial figures of the states.

5) In the financial statements cannot appreciate the affordability and desirability of some policies in place.

6) Do not always express the enforceability or convertibility of certain assets and liabilities.

7) is expressed in the accounts tax provisions, which are accepted measures, but not the right basis of valuation.

The financial statements do not accurately show the potential for growth or survival of the business.

The limitations of financial statements are not the only barriers to the Economic and Financial Analysis can also be an accounting policy note misunderstood or inappropriate. One way to avoid these other limitations is compliance with the preliminary investigation in making the analyst or specialized area, prior to the completion of analysis of certain steps:

1) Establish appropriate, the objective of the analysis. The extension of the analysis will depend on its purpose. The analysis can be total or partial, as to understand the situation of the company to its full extent or that relates to certain aspects, such as with regard to its administration. Of course, it is always advisable overall analysis, since a partial analysis, it can sometimes be misleading.

2) Collect the following information about the company:

- Background on the development of the company
- Description of activity
- Investigate if he has undergone changes in its structure, activity or administration
- Assessment of business relationships with banks, suppliers, etc.
- Assessment of the competitiveness of the company
- Findings of the market when they make the analysis (if there has been much higher prices than they are buying and what is sold)
- Investigate whether there are changes in sales policy, if held in accounts or through business papers.
- Investigate whether there are sales promotional gift items, etc., under pressure from competition.

3) Read the report of the auditors to ensure greater accuracy of the information and therefore will give a proper and correct interpretation of it.

4) Verification of the accounting standards applied, allowing a general knowledge of general purpose financial statements, to achieve a solid interpretation and meaningful comparisons.

5) Review of the notes to the financial statements and other additional information to certify the accounting policies and procedures followed, explanations of unusual items, significant events occurring after the balance sheet date.

Thus, the analyst should interpret financial statements in light of existing conditions, which differ significantly from those reflected in the financial statements allowing assessing its impact on the environment in which the company operates, and perhaps make adjustments to the financial statements to achieve more meaningful relationships and comparisons.

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