Financial Statement Analysis And Ratios - 909 Words

Chapter 17 covers the financial statement analysis and ratios. Financial statement analysis is the process of examining financial statements that will depict the financial position of the company allowing them to make better financial decisions. A typical financial statement consist of a balance sheet, income statement, cash flow statement and notes to account. The most common being the balance sheet and the income statement. The balance sheet, also referred to as a statement of financial positon, is usually made up of assets and liabilities and provides information about the financial position of the company. It is a two sided report, assets on one side, and liabilities on the other. Liabilities typically include accounts payable, accrues expenses, income tax owed, stockholders’ equity (net worth), and loans. The income statement, also referred to the earning and loss statement, depicts the profitability of the company. It shows to total sales revenue for one year. The e xpenses the company incurs in producing finished good to sell is subtracted from the sales revenue. Also deducted is the operating cost expenses and the deprecation. When analyzing the income statement, it is important to note that the profitability isn’t just the total profit. It is important to look at the ratio of expenses as a percentage of profit. A company with high profits and high expenses could easily be mismanaged. However, balance sheets and income statements have little meaning byShow MoreRelatedPaper Ratio and Financial Statement Analysis2682 Words   |  11 Pagesof Ratio and Financial Statement Analysis July 25, 2013 MGMT640 Executive Summary In corporate finance, both ratio and financial statement analysis are important tools that can be used in order to assess a company’s strength financially. They can be used in order to forecast a business’ prospective cash flow and ability to grow in the future, as well as a company’s strengths and weaknesses. 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Financial ratio was defined by Robert (1994) as two financial variables being used that have been taken from either the income statement or from the balance sheet. Ratio analysis is a tool that is brought in by individuals to perform an evaluative analysis of information in the company’s financial statements. It is an important