Financial statement analysis is the action of looking over a company’s financial statements to become better informed for making important decisions. By looking at past financial statements, some believe you can project a company’s future performance. The main documents you’ll hear about in financial statement analysis are the balance sheet, income statement, and cash flow statement.
Three common methods of analyzing financial statements include horizontal analysis, vertical analysis, and ratio analysis.
Horizontal analysis looks at the company’s finances over time, while vertical analysis looks at different departments within the company as a percentage of the total balance sheet. Ratio analysis calculates statistical ratios between groups of data, which can be helpful for more drilled-down, specific analysis.
Who does financial statement analysis? Investors and shareholders and people who did something very bad in a former life, because this is so often so dull. Who else? Well, management within the company. And competitors. (It's a big disadvantage for many companies to be public, to have to file their finances publicly...so competitors snarf all kinds of data, smell weakness, and prey upon the weak via this kind of analysis.)
Pretty much anyone looking to make money on the business analyzes these things comprising 10Qs, 10Ks, annual reports, 8Ks, and a bunch of other long-haired filings.
Related or Semi-related Video
Finance: What is a registration statemen...2 Views
finance a la shmoop what is a registration statement....Hi I'm a
registration statement okay there I said [Uncle Sam poster talking]
it that's a registration statement alright
what am I good for well if you want to go public that is raise money from Joe [Joe Sixpack and Josephine Sixpack appear]
Sixpack and his wife Josephine well then you have to jump through all kinds of
hoops the most important of which is that you have to file a prospectus with
the Securities Exchange Commission or SEC all right what's a prospectus[Prospectus with SEC badge]
it used to be an amateur spectus but the well then it took some continuing ed
classes owned expecting skills and it turned pro and took money all
right well a prospectus basically just outlines all of the information that the
SEC deems is key to the offering like trailing revenues and profits and growth
the units sold, any lawsuits outstanding against the company, distribution,
contracts with vendors patents who the management is debts owed and on and on [examples of what is outlined in a prospectus]
why the need for all this registration well because so many unsuspecting
investors who likely didn't watch this video well they got taken taken in the [Person picks up red phone]
past yeah farmers, not educated government came to their aid they
invested in some sleazy thing that wasn't run through the SEC and now
they're walking around in a barrel saying we'll uh shmoop for food yeah [Man walking in a barrel]
good luck you know the phrase a barrel of fun yeah this is not what it's
referring to [Man walking inside a barrel and a tiger appears]
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