Financial Statement Analysis

Topics: Balance sheet, Financial statements, Generally Accepted Accounting Principles / Pages: 4 (769 words) / Published: Nov 11th, 2013
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Financial Statement Analysis
Financial statement analysis (or financial analysis) the process of understanding the risk and profitability of a firm (business, sub-business or project) through analysis of reported financial information, by using different accounting tools and techniques.
Financial Statement Analysis Tools
Financial statements are usually the final output of companies accounting operations. These statements contain information relating to the revenues, expenses, assets, liabilities and retained earnings of the business. Business owners often pay close attention to this information since the statements can provide detailed information about the companies operational performance. Many business owners and managers use specific analysis tools to closely review their companies’ financial statements for decision-making purposes.They may be compared with the industrial standards. Commonly used tools for financial statement are:

1)Ratio Analysis
A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.
2)Cash Flow Statement
A financial statement that reflects the inflow of revenue vs. the outflow of expenses resulting from operating, investing and financing activities during a specific time period.
3)Common Size Financial Statement
A company financial statement that displays all items as percentages of a common base figure. This type of financial statement allows for easy analysis between companies or between time periods of a company.
4)Comparative Statement
Comparative statements calculate the difference between multiple years of data and report that difference in percentages. The accountant reviews

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