What Basic Financial Statement Analysis?
September 10, 2009
Financial ratios are a convenient way to summarize large quantities of financial data and to compare firms’ performance. They enable investors to take a unique look at the inner workings of companies - but do not substitute for a crystal ball. They won’t tell you all of the company’s innermost secrets nor will they answer all of your questions. They will, however, give you a firm foundation to build your analysis and subsequent investment decisions.
Before getting started, it is imperative to distinguish between the three most important financial statements:
*Income Statement - a financial statement that shows the revenues, expenses and net income of a firm over a period of time
*Balance Sheet - a financial statement that shows the value of the firm’s assets and liabilities at a particular time
*Statement of Cash Flows - a financial statement that tracks cash coming into and flowing out of a firm over a period of time
When it comes to various financial ratios, they can be categorized into four broad groups: Read more