Financial statement analysis is a significant business activity because a corporation's financial statements provide useful information on its economic standing and profit levels. These statements also help an investor, a regulator or a company's top management understand operating data, evaluate cash receipts and payments during a period and appraise owners' investments in the company.
Function
Financial statement analysis allows a corporation to review operating data and evaluate periodic business performance. For instance, Company A may analyze levels of cash, inventories and accounts receivable to appraise short-term assets. A corporation also may analyze financial statements to gauge levels of cash flows and owner investments. Alternatively, a regulator, such as the Securities and Exchange Commission (SEC), may review a company's retained earnings statement to appraise corporate shareholders' accounts
Benefits
Financial statement analysis may be pivotal for management to understand levels of cash receipts and disbursements in corporate operations. A statement of cash flows lists cash flows related to operating activities, investments and financing transactions. A statement of owners' equity may help an investor identify a company's shareholders. For example, Mr. A., the CFO of the sample company, may review cash payments for operating activities to gauge trends in interest payments.
ADRIANA ALVARADO
Hi Adriana!
ResponderEliminarI totally agree with you, financial statement analysis is a useful tool that allows to review economic and financial terms of a company, which will give us bases to estimate the future company’s behavior.
Perform financial statement analysis means breaking a whole into parts to determinate each of the elements that compose it and then study the effects that each performs.
The importance of financial statement analysis is that it facilitates making decision by investors or others interested in economic and financial situation of the company.
Best Regards
Johanna Herrera C.