A.

READING COMPREHENSION

Unit 2. FINANCIAL ANALYSIS

Financial analysis is the use of financial statement to analyze a company’s

financial position and performance, and to assess future financial performance.

Several questions can help to focus financial analysis. One set of questions is

future oriented. For example, does a company have the resources to succeed and

grow? Does it have resources to invest in new project? What are its sources of

profitability? What is the company’s future earning power? A second set involves

questions that assess a company’s track record and its ability to deliver on

expected financial performance. For examples, How strong is the company’s

financial position? How profitable is the company? Did earning meet analysis

forecast? This include an analysis of why a company might have fallen short of (or

succeed) expectations.

Financial analysis consists of three broad areas – probability analysis, risk

analysis and analysis of source and uses of funds. Probability analysis is the

evaluation of a company’s return on investment (ROI). It focuses on a company’s

sources and level of profits and involves identifying and measuring the impact of

various profitability drivers. It also includes evaluation of the two major sources

of profitability – margins (the portion of sales not offset by costs) and turnover

(capital utilization). Profitability analysis also focuses on reasons for changes in

profitability and the sustainability of the earnings. Risk analysis is the evaluation

of a company’s ability to meet its commitments. Risk analysis involves assessing the

solvency and liquidity of a company along with its earning variability. Since risk is of

foremost concept to creditors, risk analysis is often discussed in the context of

credit analysis. Still, risk analysis is important to equity analysis, both to evaluate
the reliability and sustainability of company performance and to estimate a

company’s cost of capital. Analysis of source and uses of funds is the evaluation of

how a company is obtaining and deploying its funds. This analysis provides insights

into a company’s future financing implication.

EXERCISES

Answer the following questions about financial analysis.

1. What instrument does the financial analysis use to analyze a company’s

financial position and performance?

2. What are the two sets of questions to help to focus financial analysis?

3. Mention some questions of future oriented in financial analysis

4. Mention the three broad areas in financial analysis. Define them!

5. What does the probability analysis focus on?

6. What does the risk analysis involve?

7. What does analysis of source and uses of funds provide?

B. VOCABULARY

1. Fill the blanks with the appropriate phrases below

Financial analysis financial statement

Probability analysis capital utilization

Risk analysis credit analysis

1. The area of financial analysis that focuses on a company’s sources and level of

profits. (…………………………………..)

2. It assesses future financial performance. (………………………………….)

 3. The context in which risk analysis is discussed for it is of foremost concept

to creditors.(…………………………………)

4. It is used to assess future financial performance. (…………………………)

5. A major sources of profitability. (…………………………..)

6. It is important to estimate a company’s cost of capital. (…….…………)

C. SOME IMPORTANT TERMS OF FINANCIAL

1. financial accounting = akunting finansil

2. financial aid = bantuan keuangan

3. financial budget period = periode anggaran keuangan

4. financial incentive = insentif keuangan

5. financial institution = lembaga keuangan

6. financial lease = kontrak sewa permodalan

7. financial planning = perencanaan keuangan

8. financial ratios = rasio keuangan

9. financial reports = laporan keuangan

10. financial statement method = metode laporan keuangan

11. financial statement = laporan keuangan

12. financier = ahli keuangan

13. financing = perbelanjaan

14. fine = denda

15. Finish goods = barang jadi

16. annual report = laporan tahunan

 17. annual return = hasil tahunan

18. annuity = anuitas (tunjangan hidup)

D. SPEAKING PRACTICE
WORKSHEET
Ask those questions to your partner and write the answers in the answer
column

No Questions Answers

1 What is your name?

2 What skills do you think should

a manager possess?

3 Have you got the skills?

4 In your opinion, how is a good

manager?

5 If you are a manager of a

company, can you act as a good
manager?

6 As a good manager, what will

you do for your company?
7 As a good manager, what will
you do for your subordinates
(workers)?