Introduction to Financial Statement Analysis
Whether you are an investor deciding which company’s shares to buy, a small business owner trying to understand your businesses financial position and performance or a philanthropist deciding on which charity to donate to, the ability to read financial statements is an invaluable skill to have.
The skill of financial statement analysis is at the heart of accounting. This module serves as a guide for it, with Part One being a basic overview, and Parts Two and Three going through Balance Sheet Analysis and Income Statement Analysis, respectively.
Many individuals and organisations use financial statements to improve decisions through business analysis. The stakeholders include:
Investors and creditors use them to assess company prospects for investing and lending decisions.
Boards of directors, as investor representatives, use them to monitor managers’ decisions and actions.
Employees and unions use financial statements in labour negotiations.
Suppliers use financial statements in setting credit terms.
Investment advisors and information intermediaries use financial statements in making buy-sell recommendations and in credit rating.
Four Key Financial Statements
The financial analyst must possess an understanding of the four key financial statements and how they describe the business activities of a company.