a) what is a financial statement analysis
Financial Statement Analysis. Overview of Financial Statement Analysis. Financial statement analysis involves the identification of the following items for a company's financial statements over a series of reporting periods: 1  Trends. 2  Create trend lines for key items in the financial statements over multiple time periods, to see how the company is performing. Inventory turnover measures the efficiency of the firm in managing and selling inventory. Inventory turnover is calculated with cost of goods sold in the numerator. Inventory turnover is a gauge of the liquidity of a firm's inventory. A low inventory turnover is generally a sign of efficient inventory management. Introduction to Financial Ratios. When computing financial ratios and when doing other financial statement analysis always keep in mind that the financial statements reflect the accounting principles. This means assets are generally not reported at their current value. Finally, finance involves analyzing the data contained in financial statements in order to provide valuable information for management decisions. In this way, financial analysis is only one part of the overall function of finance, but it is a very important one. A company's accounts and statements contain a great deal of information. Discovering the full meaning contained in the statements is at the heart of financial analysis. Watch short & fun videos Start Your Free Trial Today. Instructor: Shawn Grimsley. Financial reporting is a vital part of corporate governance. In this lesson, you'll learn what financial reporting is, its primary components, its purpose, and be provided some examples. A short quiz follows the lesson. Financial analysis is an aspect of the overall business finance function that involves examining historical data to gain information about the current and future financial health of a company. To determine the company's taxes for the current year. To determine if the firm would be a good place to obtain employment. To decide whether the borrower has the ability to repay interest and principal on borrowed funds. To determine whether an investment is warranted by estimating a company's future earnings stream. Financial statement analysis is an exceptionally powerful tool for a variety of users of financial statements, each having different objectives in learning about the financial circumstances of the entity. Users of Financial Statement Analysis. There are a number of users of financial statement analysis. Understanding the economic and political environment in which the company operates. Reviewing the annual reports of a company's suppliers, customers, and competitors. Preparing common-size financial statements and calculating key financial ratios for the company being evaluated. A document filed with the American Institute of Certified Public Accountants (AICPA) containing supplementary schedules showing management remuneration and elaborations of financial statement disclosures. A document filed with the SEC containing key business ratios and forecasts of earnings.
is an exceptionally powerful tool for a variety of users of financial statements.