Financial Statements Analysis. Annual Reports and Financial Statements as the basic sources of financial analysis

 

The basic steps of financial statements analysis 

 

• Step 1.  Acquire the company’s financial statements for several years. 
• Step 2.  Quickly scan all of the statements to look for large or significant movements in specific items from one year to the next. 
• Step 3.  Review the notes accompanying the financial statements for additional information that may be significant to your analysis.
• Step 4.  Examine the balance sheet.  Look for large changes in the overall components of the company's assets, liabilities or equity. 
• Step 5.  Examine the income statement.  Look for trends over time.  Calculate and graph the growth of the following entries over the past several years.  
• Step 6.  Examine the cash flow statement, which gives information about the cash inflows and outflows from operations, financing, and investing.  
• Step 7.  Calculate financial ratios in each of the following categories, for each year.
• Step 8.  Obtain data for the company’s key competitors, and data about the industry. 
• Step  9.  Review the market data you have about the company’s stock price.
• Step 10.  Review the dividend payout. 
• Step 11.  Review all of the data that you have generated. Prepare a short conclusion.