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Financial Performance Evaluation in the Case of Modern Building Industry

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Submitted By Yelom
Words 4537
Pages 19
CHAPTER ONE

1. Introduction

1.1. Background of the study

Financial statement analysis is a process of evaluating relationships between different components of financial statements to obtain a better understanding of the firm’s financial condition and performance. It focuses on key figures in the financial statement and significance of relationship that exist between them. Financial analysis helps users to understand the numbers presented in the financial statement and serve as a basis for financial decision making.

Financial analysis is among the important techniques that help to assess the financial performance of an organization by taking in to account company’s liquidity, leverage, operating efficiency and profitability. It concentrates on financial statements analysis, which highlights the key aspects of firms operations. Financial managers need the information provided by the analysis both to evaluate the firm’s past performance and to map the future plans and undertake informed decision. In addition to this, both lenders and other potential lenders use financial ratios to assess the future performance of a company in which they plan to invest in. Managers use this information in order to judge the performance of their entity and to control the day-to- day operation of that entity and owners make use of financial ratios to evaluate whether their companies are maximizing their wealth or not.

Ratio analysis is used to compare a firm’s performance and status with that of other firms or itself over time. It involves calculating and interpreting financial ratios in order to assess the firm’s performance and status .The basic inputs to ratio analysis are the firm’s income statement and Balance sheet for the period to be examined ( Yaregal, 2007).

The main objective of this study is to evaluate the financial performance of Modern Industry PLC. The study

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