Financial Statement Analysis

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Financial Statement Analysis

What is Financial Statement Analysis?

Looking at quantitative data from:

income statement

balance sheet

cash flow statement

Why do we do it?

investing opportunities

loaning money

competitors

What information is gained?

benchmarks

spot red flags

How is Financial Statement Analysis done?

​​​​​​​comparing ratio analysis

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Liquidity, Efficiency, Solvency & Profitability

Liquidity & Efficiency

How quickly we can convert to cash, meet short-term obligations

Current Ratio:

Current Assets / Current Liabilities

You want double the Assets

Acid Test Ratio (Quick Ratio):

(Cash + Short Term Investments + Current Receivables) / Current Liabilities

AR Turnover:

Net Sales / Average AR

You want this number to be big

Solvency

Excess of assets over liabilities, which leads to long-term business viability

Debt Ratio:

Total Liabilities / Total Assets

Profitability

Return on Total Assets:

Net Income / Average Assets