Financial statement analysis is an essential skill for individuals involved in investment management, corporate finance, commercial lending, and the extension of credit. Ratios are often classified in groups, such as efficiency, liquidity, solvency, profitability, and market. 1. Retrieved from wallstreetmojo: https://www.wallstreetmojo.com/financial-statement-, https://www.s-cool.co.uk/a-level/business-studies/ratio-analysis/revise-it/ratio-analysis-introduction, https://www.thebalancesmb.com/what-is-financial-ratio-analysis-393186, https://www.coursehero.com/file/p23enl2/Conclusion-FINANCIAL-RA, https://www.vault.com/company-profiles/general-consumer, https://corporatefinanceinstitute.com/resources/knowledge/finance/times-interest-earned/, https://finance.yahoo.com/quote/NKE/balance-sheet?p=NKE, https://www.researchgate.net/publication/340731673_Overview_of_Financial_Institutions_in_the_Unit, https://finance.yahoo.com/quote/NKE/financials?p=NKE. The income statement, statement of retained earnings, balance sheet, and statement of cash flows, among other financial information, can be analyzed. To find out the financial performance of a company. analyze the company by using its annual reports such as income statement and balance sheet. 3. This measures certain aspects of performance for the subject company. Ratios vary from industry to industry, but the most common ratios include inventory turnover, receivables turnover, fixed asset turnover, and total asset turnover. Financial ratios are usually split into seven main categories: liquidity, solvency, efficiency, profitability, equity, market prospects, investment leverage, and coverage. To find out the operating performance of a company. The objectives of financial statement analysis are presented below: 1. 4. We evaluate the current status of Apple’s liquidity using the current ratio, the liquidity ratio, and, the cash ratio. A vertical common size analysis divides all items on the income statement by the current year’s total revenue. WS 2017/2018 This analysis helps business owners and other key stakeholders in understanding the financial position and operating performance of the business. Two methods are commonly used, common-size analysis and ratio analysis. Further, it helps each of the stakeholders in making credit, investment and other business decisions. The accounting equation displays that all assets are either financed by borrowing money or paying with the money of the company's shareholders. Financial statement analysis traces a company’s rise or fall from its inception to the reporting date. Liquidity ratios measure a company’s ability to meet its short-term obligations. This is a guide to the Objectives of Financial Statement Analysis. Common size percentages are calculated either vertically or horizontally. The role of the financial statements is to provide information for both internal and external stakeholders, including shareholders and regulators, about a company's finances. Definition: Financial statement analysis is the use of analytical or financial tools to examine and compare financial statements in order to make business decisions. (2014, august). Putting another way, financial statement analysis is a study about accounting ratios among various items included in the balance sheet. The process of converting financial statement data into percentages is common size analysis. Financial statement analysis is performed to determine thecompany's financial performance, can also be used as a reference in making decisions thataffect the company's future. The statement of cash flows, which reports on cash inflows and outflows to the firm during the period of analysis! 3! See the following example for a common size income statement. It helps us in understanding the financial performance of the company derived from its financial statements. Therefore, there are three objects of financial statement analysis: financial position, operating results and cash flow. 2. This reading is organized as follows: Section 2 discusses the scope of financial statement analysis. In financial statement analysis, context is everything. July 2020; SSRN Electronic Journal; DOI: 10.2139/ssrn.3675026. Its important to present and evaluate financial statements in a proper manner otherwise important managerial decisions cannot be formulated as it is difficult to derive financial ratios and cash flow analysis from an inappropriately prepared financial statement of a company. By eliminating size as a factor, it enables analysts to view a better picture of how the company is performing over time. Analysis and Interpretation of Financial Statements TABOBO, Quennie SABINO, Chesca GO, Willesa CASTRO, Dave Michael BUEN, Ma. 6. 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