Brief Definition
Financial statement analysis is the process of reviewing and evaluating a company’s financial statements to gain an understanding of its financial health and performance.
Further Explanation
Financial statement analysis is the process of reviewing and evaluating a company’s financial statements to gain an understanding of its financial health and performance. This involves examining the balance sheet, income statement, cash flow statement, and notes to the financial statements. The analysis can be conducted using various techniques such as ratio analysis, trend analysis, and comparative analysis.
Example:
By analyzing a company’s financial statements, an investor can determine whether the company is generating enough profit, managing its debts effectively, and maintaining sufficient cash flow. For instance, if a company’s current ratio (current assets divided by current liabilities) is 1.5, it means the company has $1.50 in assets for every $1.00 of liabilities, indicating good short-term financial health.