I am working on Financial Statement Analysis Project and I\'m stuck on the last

Question

I am working on Financial Statement Analysis Project and I'm stuck on the last two items on my list those are the Assumption, Key factors, and Inferences. I'm not understanding

Assumptions – identification of important assumptions regarding a company’s industry and economic environment, and other important assumptions for estimates

Key factors – list of important favorable and unfavorable factors, both quantitative and qualitative, for company performance; usually organized by areas of analysis.

Inferences – forecasts, estimates, interpretations, and conclusions drawing on all sections of the report.

Would key factors be like the companies SWOT Analysis of the company?

I am hoping to hopefully have these three explain in terms more easily understood?

Explanation / Answer

Assumptions are the standard conditions that are applied to the data analysis such as financial statement analysis to be true under that conditions. For financial statement analysis, following assumptions can be taken for example.

1. Data provided by the sources are clean, authentic and true to the company provided information.

2. Sources used for the data are peer reviewed, reputed and authentic in nature.

3. Financial statements used for the analysis are audited and best of the information provided by the company.

4. Interpretation of the financial ratios are on the basis of existing economic and industrial scenarios and it is assumed that these considerations will be table for a foreseeable period of time.

5. Assumption of industrial growth is considered as a background to interpret the ratios.

Key Factors are the growth drivers as well as the issue and concerns that affect the company and its performance in the industry and contributions in the economy. Such key factors can be as follows:

Growth driver factors

1. Favorable government policies

2. Rising demand at the domestic and international level

3. Development of special economic zones and preferential treatment by the government

4. Presence of suitable infrastructure for growth.

Issues and concerns factors

5. Increased level of competition

6. Increased volatility

7. Demand pull inflation rising cost of input factors

Inferences are the premium and discounts what are put during the forecasting and the interpretation on the basis of existing economic sentiments. Inferences are drawn on the basis of existing economic status, presence of demand and consumer confidence in the market. Inferences are overlapping with the assumptions in a limited extent.

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Key factors explain the determinants that will affect the company performance either positively or negatively, whereas SWOT analysis give an idea of the internal strength and weaknesses as well as external threat and opportunities w.r.t. the market. So, Key factors and SWOT analysis are different from each other and represent different aspects of the company performance.

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