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.
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Financial Statement Analysis refers to the process of analyzing and assessing a company’s financial statements to gain an understanding of its business model
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