2. Financial statements hold a variety of quantitative information for example; the financial statements: income statement, balance sheet, and cash flow statement. The financial statements of any organization summarize all of that organization’s transactions with outside parties during the reporting period. This information will allow analyst to understand the status of an organization’s financial health.
3. One of the limitation of financial statement is the information being studied is based on past transactions and performances of prior time periods. Meaning this information being used cannot be utilized to predict future trends or predict the financial status of an organization in the future.
4. In order to prepare a financial statement and individual must poses the knowledge of understanding accounting rules, procedures and principles.
5. In a common-size statement each of the items stated in the financial statement is presented as a percentage of some base. For example, balance sheet items are shown as percentages of total assets. Income statement items are shown as percentages of total revenue. Cash flow statement items are shown as percentages of net change in cash.
6. There are many different types of ratios analyst formulas used to compute different financial areas of an organization. For example, the inventory turnover ratio, Computed as total revenues plus net non operating gains divided by ending inventory. These results will show how many times, on average, the organization’s total volume of inventory turns over, or changes, during an accounting period.
7. Most financial analyst prefer ratio analysis because ratios provide a way of summarizing a
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