Financial statement analysis involves the identification of the following items for a company’s financial statement over a series of reporting periods:
Create trends lines for key items in the financial statements over multiple time periods, to see how the company is performing.
An array of ratios are available for discerning the relationship between the size of various accounts in the financial statements. For example, you can calculate a company’s quick ratio to estimate its ability to pay its immediate liabilities, or its debt to equity ratio to see if it has taken on too much debt.
Users of Financial Statement Analysis:
There is number of users of financial statement analysis. They are:
- Creditors. Anyone who has lent funds to a company is interested in its liability to pay back and so will focus and so on various cash flow measures.
- Both current and prospective investors examine financial statements to learn about a company’s ability to continue issuing dividends, or to generate cash flow, or to continue growing at its historical rate.
- The company controller prepares an ongoing analysis of the company’s financial results, particularly in relation to a number of operational metrics that are not seen by outside entities (such as the cost per delivery, cost per distribution channel, profit by product, and so forth).
Regulatory Authorities. If a company is publicly held, its financial statements are examined by the Securities and Exchange Commission to see if its statements conform to the various accounting and rules of the SEC.