Essay on Financial Statement Analysis And Financial Analysis

1772 Words Mar 3rd, 2016 8 Pages
The owners and the other stakeholders of a business are always interested in knowing the financial health and financial soundness of the business. Financial statement analysis or financial analysis is the process of reviewing and analyzing a company’s financial statements to make better economic decisions. These statements include the income statements, balance sheet, statement of cash flows and a statement of retained earnings. Financial statement analysis is a method or process involving specific techniques for evaluating the risk, performance, financial health and future prospect of an organization

The financial statement analysis is used by a variety of stakeholders such as creditors and equity investors, the government, and the public and decision makers within the organization. These stakeholders have different interest and apply a variety of different techniques to meet their needs. For example, equity investors are interested in the long term earning power of the organization and perhaps the sustainability and dividend payments. Creditors want to ensure that the interest and the principal is paid on the organizations debt securities when due.

Common methods of financial statement analysis include fundamental analysis, DuPont analysis, Z score analysis, horizontal and vertical analysis and the use of financial ratios. Historical information combined with a series of assumptions and adjustments to the financial information may be used to project future performance.…

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