Financial Statement Analysis
Financial Statement Analysis
A definition of financial statement analysis can be summed as the process of analysing a company's current financial statements for accounting and decision-making purposes.
It is used by external stakeholders for a better understanding of the overall health of an organization as well as to evaluate financial performance and business value. Internal constituents use it as a monitoring tool for managing financial data.
The financial analysis is commonly expressed in the format of ratio, utilising numbers from financial statements. There are several key financial ratios – profitability ratios, market-based financial ratios, liquidity ratios, and gearing or financial stability ratios.
The financial analysis is commonly expressed in the format of ratio, utilising numbers from financial statements. There are several key financial ratios – profitability ratios, market-based financial ratios, liquidity ratios, and gearing or financial stability ratios.
Financial Statements
Three main financial statements exist that every company creates and monitors currently through a specific software: the balance sheet, income statement, and cash flow statement. These financial statements are used to manage the operations of their business and also to provide reporting transparency to their stakeholders. These three statements are interconnected and create different views of a company’s activities and performance.
Balance Sheet
This document is a report of a company's financial worth in terms of book value. It is broken into three parts to include a company’s assets, liabilities, and shareholders or investors equity.
Some of the short-term assets such as cash and accounts receivable can tell a lot about a company’s operational efficiency. Expense arrangements and the debt capital it is paying off are considered liabilities. Details on equity capital investments and retained earnings from periodic net income are included in the shareholder’s equity.
A balance must be achieved between the balance sheet and assets minus liabilities equalling shareholder’s equity. The shareholder’s equity is considered a company’s book value, this value is an important performance metric that increases or decreases with the financial activities of a company.
Some of the short-term assets such as cash and accounts receivable can tell a lot about a company’s operational efficiency. Expense arrangements and the debt capital it is paying off are considered liabilities. Details on equity capital investments and retained earnings from periodic net income are included in the shareholder’s equity.
A balance must be achieved between the balance sheet and assets minus liabilities equalling shareholder’s equity. The shareholder’s equity is considered a company’s book value, this value is an important performance metric that increases or decreases with the financial activities of a company.
Income Statement
This document breaks down the revenue a company earns in a month or a day against the expenses involved in its business to generate a bottom line, net income profit or loss. It is broken into three parts which help to analyse business efficiency at three different points. Beginning with total revenue and the direct costs associated with revenue to identify gross profit. Followed then by moving to operating profit which subtracts indirect money expenses such as marketing costs, general paid costs, and depreciation. It then ends with net profit which deducts interest payments and taxes.
Key financial ratios analysed in the income statement are profitability ratios or margin ratios. A calculation of gross profit margin is usually a part of the analysis of the income statement, operating profit margin, and net profit margin which each divide profit by revenue. The profit margin helps to show where company costs are low or high at different points of the operations within a period of time.
Key financial ratios analysed in the income statement are profitability ratios or margin ratios. A calculation of gross profit margin is usually a part of the analysis of the income statement, operating profit margin, and net profit margin which each divide profit by revenue. The profit margin helps to show where company costs are low or high at different points of the operations within a period of time.
Cash Flow Statement
This document provides an overview of the company's cash flows from operating activities, investing activities, and financing activities. A net income is carried over to the cash flow statement where it is included as the top line item for operating activities. Investing activities include cash flows involved with firm wide investments. Furthermore; the financing activities section includes cash flow from both debt and equity financing. While, the bottom line shows how much cash a company has available on hand.
A definition of financial statement analysis can be summed as the process of analysing a company's current financial statements for accounting and decision-making purposes.
It is used by external stakeholders for a better understanding of the overall health of an organization as well as to evaluate financial performance and business value. Internal constituents use it as a monitoring tool for managing financial data.
The financial analysis is commonly expressed in the format of ratio, utilising numbers from financial statements. There are several key financial ratios – profitability ratios, market-based financial ratios, liquidity ratios, and gearing or financial stability ratios.
The financial analysis is commonly expressed in the format of ratio, utilising numbers from financial statements. There are several key financial ratios – profitability ratios, market-based financial ratios, liquidity ratios, and gearing or financial stability ratios.
Financial Statements
Three main financial statements exist that every company creates and monitors currently through a specific software: the balance sheet, income statement, and cash flow statement. These financial statements are used to manage the operations of their business and also to provide reporting transparency to their stakeholders. These three statements are interconnected and create different views of a company’s activities and performance.
Balance Sheet
This document is a report of a company's financial worth in terms of book value. It is broken into three parts to include a company’s assets, liabilities, and shareholders or investors equity.
Some of the short-term assets such as cash and accounts receivable can tell a lot about a company’s operational efficiency. Expense arrangements and the debt capital it is paying off are considered liabilities. Details on equity capital investments and retained earnings from periodic net income are included in the shareholder’s equity.
A balance must be achieved between the balance sheet and assets minus liabilities equalling shareholder’s equity. The shareholder’s equity is considered a company’s book value, this value is an important performance metric that increases or decreases with the financial activities of a company.
Some of the short-term assets such as cash and accounts receivable can tell a lot about a company’s operational efficiency. Expense arrangements and the debt capital it is paying off are considered liabilities. Details on equity capital investments and retained earnings from periodic net income are included in the shareholder’s equity.
A balance must be achieved between the balance sheet and assets minus liabilities equalling shareholder’s equity. The shareholder’s equity is considered a company’s book value, this value is an important performance metric that increases or decreases with the financial activities of a company.
Income Statement
This document breaks down the revenue a company earns in a month or a day against the expenses involved in its business to generate a bottom line, net income profit or loss. It is broken into three parts which help to analyse business efficiency at three different points. Beginning with total revenue and the direct costs associated with revenue to identify gross profit. Followed then by moving to operating profit which subtracts indirect money expenses such as marketing costs, general paid costs, and depreciation. It then ends with net profit which deducts interest payments and taxes.
Key financial ratios analysed in the income statement are profitability ratios or margin ratios. A calculation of gross profit margin is usually a part of the analysis of the income statement, operating profit margin, and net profit margin which each divide profit by revenue. The profit margin helps to show where company costs are low or high at different points of the operations within a period of time.
Key financial ratios analysed in the income statement are profitability ratios or margin ratios. A calculation of gross profit margin is usually a part of the analysis of the income statement, operating profit margin, and net profit margin which each divide profit by revenue. The profit margin helps to show where company costs are low or high at different points of the operations within a period of time.
Cash Flow Statement
This document provides an overview of the company's cash flows from operating activities, investing activities, and financing activities. A net income is carried over to the cash flow statement where it is included as the top line item for operating activities. Investing activities include cash flows involved with firm wide investments. Furthermore; the financing activities section includes cash flow from both debt and equity financing. While, the bottom line shows how much cash a company has available on hand.
Why Financial Analysis is Critical
Why Financial Analysis is Critical
It is clear that companies perform well when they have a proper budgeting management and forecasting change as well as financial analysis process that is able to mitigate disaster in the recessionary periods. By properly assessing risks, it is typically easy to guide any firm to a positive position, whether it is in growing sales, increasing profitability, or making investment decisions.
Looking for a reliable financial analyst? InTune Outsourcing has a team of professional analysts and consultants ready to put their skills and knowledge to use in supporting your business growth. Call or email us to find out how we can help you.
It is clear that companies perform well when they have a proper budgeting management and forecasting change as well as financial analysis process that is able to mitigate disaster in the recessionary periods. By properly assessing risks, it is typically easy to guide any firm to a positive position, whether it is in growing sales, increasing profitability, or making investment decisions.
Looking for a reliable financial analyst? InTune Outsourcing has a team of professional analysts and consultants ready to put their skills and knowledge to use in supporting your business growth. Call or email us to find out how we can help you.
Every SME Can Become Large
InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.
Every SME Can Become Large
InTune Outsourcing - Creating Financially Driven Businesses and Entrepreneurs.
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InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.
About InTune Outsourcing Services
Quick Link
InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.
SME Consulting Firm of the Year
Social Media
About InTune Outsourcing Services
InTune Outsourcing was founded in 2007 as an outsourcing and business consultancy firm geared to the needs of small and medium sized enterprises.
SME Consulting Firm of the Year