Financial Statement Analysis

RUNNING HEAD: Financial Statement Analysis
Financial Statement Analysis
[Type the document subtitle]

Financial Statement Analysis 1
Abstract
The objective of the paper is to enlighten the reader about the information of the companies of
UAE, Du and Etisalat. Both the organizations are a part of telecommunication sector of UAE.
The below mentioned paper throw light on the financial activities of the companies along with an
analysis of the better performing organization in the one fiscal year. The report conducts a
systematic analysis of review of literatures about the financial statements of an organization.
Financial statements are important for the business analysis as they guide the investors to invest
in the right organization. Further, it has been found that the investor should invest in Etisalat
Company for the better profitability and returns. Suggestions to the company Du are provided for
healthy growth. More details about the paper are discussed below:

Financial Statement Analysis 2
Contents
Abstract............................................................................................................................................1
Introduction......................................................................................................................................3
Literature Review............................................................................................................................3
Methodology....................................................................................................................................6
Data Analysis...................................................................................................................................6
Du and Etisalat.............................................................................................................................6
Findings and Discussion................................................................................................................10
Conclusion and Recommendation.................................................................................................12
References......................................................................................................................................14
Appendices....................................................................................................................................17

Financial Statement Analysis 3
Introduction
The purpose of this paper is to initiate the time series analysis of two companies to UAE. DU
and Etisalat are the two companies chosen for the financial analysis. The report provides the
financial analysis of both the companies for one fiscal years. The objective of the paper is to
analyse the information about both the companies and provide a comparative analysis to reader
so that they can evaluate the more prosperous organization present in the market of UAE.
Emirates Integrated Telecommunication Company, commercially rebranded as DU is a telecom
organization present in the UAE. The company was rebranded in the year 2007 and is one of the
two telecom operators present in the United Arab Emirates market. The company provides fixed
line, mobile telephony, digital television and internet service to the people of UAE. The financial
results of the company DU state that the business is working profitable in the target market (Du
2019).
Further, talking about the company Etisalat that is an Emirates Telecommunication Group
Company was formed in the year 1976. The company is the second organization provides
telecommunication services to the customers in 15 countries across Asia. Middle East and Africa
as well. The company effectively provides internet services to the customers present in Middle
East region (Etisalat 2019).
Literature Review
The fact should be understood that all the active partners of an organization are interested in the
financial affairs of the company. The prospective people connected with the functioning of the
company believe that increasing financial data of the company shows prosperity for the company
that will certainly provide profitability to them as well. Further, it should be noted that balance
sheet is a statement that truly reflects the position of assets and liabilities of the company as a
particular period of time. Balance sheet is known as financial statement of the company.
According to Fridson, and Alvarez 2011, the assets side of the balance sheet constitute of fixed
assets, current assets, investments, loans and advances. Further, the share capital of the company
along with current and noncurrent liabilities and provisions form the liability side of a balance

Financial Statement Analysis 4
sheet. Thus, it can be said that several assets and liabilities that the company has acquired till a
set date are expressed in the form of a statement called balance sheet.
Balance sheet is a statement prepared with the aim to measure the exact financial position of the
business till a certain date. Balance sheet of a company further helps the management to prepare
fund flow statement that throws light of the funds present with the company and the areas where
they have been applied. Balance sheet can be analysed using various methods namely, financial
statement analysis, trend analysis, comparative and common size, ratio analysis, cash flow and
fund flow analysis. The analysis of balance sheet also helps the business to analyse the financial
ratios and evaluate capital employed as well.
Assets= Liabilities+ Equity
According to Chandra 2011, income statement is a summary of the profitability of the company
over a period of time. The income statement of an organization reveals the revenue generated by
the business during an operating period along with the expenses incurred by the organization
during that period. Income statement is also called profit and loss statement that focuses on the
revenue and expenses of company for a particular period of time. While balance sheet provides a
snapshot of the financials of the company, income statement evaluates the income of the
company throughout a particular period of time. Formula of income statement is mentioned
below:
Net Income = (Revenue + Gains) – (Expenses + Losses)
Vertical analysis that is commonly known as a common size analysis focuses on the important
relationships between the financial statements. When a company is growing or falling in its
overall market growth, it is difficult to analyse that which sector of the statement is changing.
Common size financial statement provides details about the percentage change in each aspect of
the financial statement of the company. Accroding to Chen, et. al., 2011 common size balance
sheet is formed by dividing each asset with the total amount of assets and each liability as total
amount of liabilities and stockholder’s equity. Further, common size income statement reports
each income aspect as a per cent of the sales. Common size analysis of financial statement
converts each line of the financial statement data to an easy and comparable per cent. This
process is initiated by stating the income statement aspects as a per cent of sales and balance

Financial Statement Analysis 5
sheet items as a per cent of total assets or total liabilities and stockholder’s equity. In the
perspective of Venkataraman, Khatoon 2012, the common size analysis is used to evaluate the
competitors and trends present in the company. This type of analysis is easy to understand and
provides a comparative time series analysis to the management as well. This financial statement
helps in analysing trends along with the structural position of the company. Further, limitation of
this type of analysis is that there is no standard ratio or percentage regarding the change in
various aspects due to which decision taken on this basis of the statement might negatively affect
the growth of the business. Also, this type of analysis does not focus on the changes in price
level that is inflationary effect (Brigham, et. al., 2016).
Financial ratio constitutes one of the most important parts of the financial analysis as it helps the
user to understand relationship among various item reported in the financial statements. This
type of analysis compares different aspects of the financial statement of the same year. This
analysis helps the user to know how the company has performed using the available resources in
the current year. There are four major ratios calculated in the financial analysis that are
profitability, liquidity, solvency and asset efficiency ratio. The solvency ratio is asset to equity
ratio that measures the firm’s degree of financial leverage due to which this type of ratio is also
called leverage ratio. The result of this ratio is equal to 1 plus the debt/ equity ratio. Just like the
liquidity ratio, this ratio also evaluates the ability of the company to meet its debts. The liquidity
ratio focuses on short term debts while the solvency ratio focus on long term liabilities of the
business. Lastly, asset efficiency ratio helps in understanding the efficiency of the company
when they use assets to increase sales (Rodríguez-González, et. al., 2012).
Dupont analysis is an extended examination of the return on equity of the company that analyse
the asset turnover, net profit margin and financial leverage of the company. This analysis
explains how the company can increase its returns for their shareholders by breaking by the
return on equity. The company increases its return on equity either by generating high net profit
margin, effectively using assets to generate more sales or by having high financial leverage. In
the perspective of Weil, Schipper, and Francis 2013, this type of analysis helps the investor to
have a broader picture about the returns of the company that they are earning on its equity. This
helps in explaining the strengths and weakness of the business. This analysis also helps the
business in analysing the reason of low return on equity. The major component of the DuPont