Financial Statement Analysis
Financial analysis focuses on the data contained in a business’s financial statements (Gapenski, 2012). Financial statement analysis is applied to historical data, which comprise the road map for the business’s future (Gapenski, 2012). Financial statement analysis is used to trend for the future at the current condition.
The financial statement analysis is supplemented by operating indicator analysis. Operating indicator analysis uses operating data not usually found in an organization’s financial statement that will help identify factors that contribute to the assessed financial condition (Gapenski, 2012).
Financial statement analysis and operating indicator analysis are both important analysis as they involve a number of techniques that extract information contained in a business’s financial statements and elsewhere and combine it in a form that facilitates making judgments about the organizational strengths and weaknesses (Gapenski, 2012).
Financial ratios are indicators used to analyze a company financial performance. Financial ratios are used by bankers, creditors, shareholders and accountants to evaluate data presented on company financial statements (Gapenski, 2012). Profitability ratios help users of a company financial statements determine the overall effectiveness of management regarding returns generated on sales and investments (Gapenski, 2012). Commonly used profitability ratios are gross profit margin, operating profit margin and net profit margin (Gapenski, 2012). Ratios that measure the effectiveness of management decision making are referred to as efficiency ratios. Efficiency ratios evaluate turnover and the return on investments (Gapenski, 2012). Examples of efficiency ratios are inventory turnover, sales to receivables and return on assets (Gapenski, 2012). Challenges of Financial Statement Analysis
Financial statement analysis involves
References: Gapenski, L. (2012). Healthcare finance: An introduction to accounting and financial management (5th ed.). Chicago, IL: Health Administration Press Marshall. , McManus, & Viele, (2011). Financial statements and accounting concepts/ principles. Mcgraw-Hill. Retrieved from http://highered.mcgraw-hill.com/sites/dl/free/0073527068/792292/sample_chapter2.pdf