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FS Analysis (Notes Only)

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9 views2 pages

FS Analysis (Notes Only)

Uploaded by

soleilshin000
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Statement Analysis

Financial statement analysis is the process of evaluating financial data to assess a

company’s performance and make informed economic decisions. It involves the

interpretation of the three main financial statements: the income statement, balance

sheet, and cash flow statement.

1. Types of Analysis:

●​ Horizontal Analysis: Examines financial data over multiple periods to identify

trends and growth patterns.

●​ Vertical Analysis: Expresses each item as a percentage of a base figure within

the same period, allowing for proportional comparison.

●​ Ratio Analysis: Utilizes key financial ratios to evaluate aspects like liquidity,

profitability, and solvency.

2. Key Ratios:

●​ Liquidity Ratios: Current ratio, quick ratio

●​ Profitability Ratios: Gross margin, net profit margin, return on equity

●​ Solvency Ratios: Debt to equity, interest coverage ratio

3. Applications:

●​ Investors use financial analysis to assess risk and potential returns.

●​ Managers use it for strategic planning and performance evaluation.

●​ Creditors evaluate the company’s ability to repay debts.


4. Example: If a company’s current ratio is below 1, it may face liquidity issues. Rising

revenue in horizontal analysis may suggest growth, while declining profit margins could

indicate cost issues.

Financial statement analysis transforms raw financial data into actionable insights,

supporting sound financial decision-making.

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