There are generally six steps to developing an effective analysis of financial statements.

  1. Identify the industry economic characteristics. …
  2. Identify company strategies. …
  3. Assess the quality of the firm’s financial statements. …
  4. Analyze current profitability and risk. …
  5. Prepare forecasted financial statements. …
  6. Value the firm.

 

Companies use the balance sheet, income statement, and cash flow statement to manage the operations of their business and also to provide transparency to their stakeholders. All three statements are interconnected and create different views of a company’s activities and performance

.The most important financial statement for the majority of users is likely to be the income statement, since it reveals the ability of a business to generate a profit. Also, the information listed on the income statement is mostly in relatively current dollars, and so represents a reasonable degree of accuracy

 

What Investors Want to See in Financial Statements

  • Net Profit. Financial statements will reveal a company’s net profit, The net profit is the money that a business has left over after paying all expenses. …
  • Sales. …
  • Margins. …
  • Cash Flow. …
  • Customer Acquisition Cost. …
  • Customer Churn Rates. …
  • Debt. …
  • Accounts Receivable Turnover.