Financial Statements Analysis

What is financial statement analysis?

Financial statement analysis is the process of examining and evaluating a company's financial statements to gain insights into its financial health and performance. It involves analyzing key financial ratios and metrics, such as liquidity, profitability, and solvency, to assess the company's ability to meet its financial obligations and generate profits.

What are the types of financial statement analysis?

There are three main types of financial statement analysis: horizontal analysis, vertical analysis, and ratio analysis. 1. Horizontal analysis compares financial data over multiple periods to identify trends and changes in performance. It helps to assess the company's growth or decline over time. 2. Vertical analysis involves comparing items within a single financial statement to determine their proportionate contribution to the whole. It helps understand the relative importance of different items and their impact on the overall financial position. 3. Ratio analysis calculates various financial ratios using data from the financial statements. These ratios provide valuable insights into the company's liquidity, profitability, efficiency, and financial stability.

Horizontal analysis
Vertical analysis
Ratio analysis

How to complete financial statement analysis

To complete financial statement analysis, follow these steps: 1. Gather the necessary financial statements, including the balance sheet, income statement, and cash flow statement. 2. Conduct horizontal analysis by comparing financial data over multiple periods to identify trends and changes. 3. Perform vertical analysis by comparing items within a single financial statement to understand their relative importance. 4. Calculate various financial ratios using the data from the financial statements to assess the company's financial health and performance. 5. Interpret the financial ratios and other analysis findings to draw conclusions about the company's strengths, weaknesses, opportunities, and threats. 6. Use the insights gained from the analysis to make informed decisions and recommendations regarding the company's financial strategies and operations.

01
Gather the necessary financial statements
02
Conduct horizontal analysis
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Perform vertical analysis
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Calculate financial ratios
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Interpret the findings
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Make informed decisions

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Questions & answers

The three major tools for financial statement analyses are horizontal analysis, vertical analysis, and ratios analysis.
Log into Microsoft Excel Online and open a blank spreadsheet. Identify the assumptions for the financial statement and create a Transactions page. Create a Profit and Loss statement that summarizes monthly transactions. Use the SUMIFS formula to populate the categories for the Profits and Loss with the transactions.
There are generally six steps to developing an effective analysis of financial statements. Identify the industry economic characteristics. Identify company strategies. Assess the quality of the firm's financial statements. Analyze current profitability and risk. Prepare forecasted financial statements. Value the firm.
Five Financial Statement Analysis Techniques Trend analysis: Common-size financial analysis: Financial ratio analysis: Cost volume profit analysis: Benchmarking (industry) analysis:
A: Yes. Excel has a range of financial templates, including income statements, cash flow statements, and balance sheets.
Commonly used tools of financial analysis are: Comparative statements, Common size statements, trend analysis, ratio analysis, funds flow analysis, and cash flow analysis.