Financial Statement Analysis refers to the process of analyzing and assessing a company’s financial statements to gain an understanding of its business model, financial performance, risk and profitability of the business.
The role of financial statement analysis is to utilize the information available in a company's financial statements (Balance Sheet, Income Statement, Cash flow Statement etc) along with other relevant information, to make economic decisions. Key objective of financial statement analysis include assessing decisions such as whether to invest in the company's securities or recommend them to investors, and whether to extend trade or bank credit to the company. Analysts use financial statement data to evaluate past performance and current financial position of a company in order to form opinions about the company's ability to earn profits and generate cash flow in the future.
The framework for financial statement analysis may be broadly categorized into following six steps:
Business segments and geographic segments can be analyzed separately to provide more detail about a company's financial performance. Common-size financial statements and ratio analysis can be used to construct pro forma financial statements based on a forecast of sales growth and assumptions about the behavior of a firm's financial ratios.
Financial Statement Analysis refers to the process of analyzing and assessing a company’s financial statements to gain an understanding of its business model
Eshna is a writer at Simplilearn. She has done Masters in Journalism and Mass Communication and is a Gold Medalist in the same. A voracious reader, she has penned several articles in leading national newspapers like TOI, HT and The Telegraph. She loves traveling and photography.
Disclaimer: "PMI®", "PMBOK®", "PMP®", "PMI-RMP®", "CAPM®" and "PMI-ACP®" are registered marks of the Project Management Institute, Inc.
The Swirl logoTM is a trade mark of AXELOS Limited.
ITIL® is a registered trade mark of AXELOS Limited.
PRINCE2® is a Registered Trade Mark of AXELOS Limited.
MSP® is a Registered Trade Mark of AXELOS Limited
Certified ScrumMaster® (CSM) and Certified Scrum Trainer® (CST) are registered trade marks of SCRUM ALLIANCE®
Professional Scrum Master is a registered trademark of Scrum.org
The APMG-International Finance for Non-Financial Managers and Swirl Device logo is a trade mark of The APM Group Limited.
The Open Group®, TOGAF® are trademarks of The Open Group.
IIBA®, the IIBA® logo, BABOK® and Business Analysis Body of Knowledge® are registered trademarks owned by International Institute of Business Analysis.
CBAP® is a registered certification mark owned by International Institute of Business Analysis. Certified Business Analysis Professional, EEP and the EEP logo are trademarks owned by International Institute of Business Analysis.
COBIT® is a trademark of ISACA® registered in the United States and other countries.
CISA® is a Registered Trade Mark of the Information Systems Audit and Control Association (ISACA) and the IT Governance Institute.
CISSP® is a registered mark of The International Information Systems Security Certification Consortium ((ISC)2).
CISCO®, CCNA®, and CCNP® are trademarks of Cisco and registered trademarks in the United States and certain other countries.