How To Write a Financial Statement Analysis

Making a financial statement

A financial statement analysis is important to investors because in analyzing valuable shares to purchase, hold, or sell, and how much and when. But there are limitations in these ratios, and this depends on the financial statement preparation.

You can write an effective financial statement analysis through financial ratios. The accounting data in your financial statements are helpful in applying the needed data in ratio. The ratio will aid you gauge the waterloos and strengths of the company and you’ll identify the comparisons and trends among other firms in the industry. Even though ratios have limitations, they will teach you to ask proper questions. Financial ratio analysis covered areas like financing, operating profits, liquidity, and investment returns on stockholders. Below are instructions on how to write a financial statement analysis effectively.

  • Calculate the financial ratios. Perform the succeeding calculations: Operation profits (6 calculations); Liquidity (5 calculations); Financing (2 calculations); then equity return (1 calculation).
  • Learn the subsequent liquidity calculations:
    • Standard collection period is equals to the daily credit/accounts receivable sales.
    • Current ratio is equals to current liabilities/current assets.
    • Inventory turnover is equals the cost of inventory/goods sold.
    • Accounts receivable turnover is equals to accounts receivable/credit sales.
  • Learn to calculate operating profits.
    • Operating profit margin is equals to operating sales/income.
    • Operating income return in investment is equals to total assets/operating income.
    • Accounts receivable turnover is equals to accounts receivable/credit sales.
    • Total asset turnover is equals to total assets/sales.
    • Fixed assets turnover is equals to net fixed assets/sales.
    • Inventory turnover is equals to inventory/price of products sold.
  • Understand financing calculations. The total debt is equals to debt ratio/total assets, multiplied by the interest earned equals the operating interest/income.
  • Understand equity calculations return. Common equity/net income is equals the return on equity.
  • Get the best information possible. Calculate grade report cards in every area in your analysis and industry competitors. You can do this by calculating the industry’s standard deviation ratios and of your competitors so you can analyze things better.
  • Put the calculation results in your report format in each of the four sections. Analyze the calculations.

Invest quality time in writing your financial statement so your perspective investors will become highly interested. Remember to put industry comparisons in your every calculation. It is enormously vital to indicate the expected outcome of a company’s current or first year of operations. You also need to make predictions of business trends and finances.

Everyone can comprehend a financial statement but unfortunately, it is also easy for some people to conceal valuable information. Like, an analyst understands cash flow statements so he knows if the cash flow comes from additional financing activities or operations. And there are particular conventions like inventory accounting and depreciation that can decrease or increase net income. It just depends on the convention that is used. An analyst can bend the real score of a financial statement so you really need to build a good reputation if you’re a financial statement analyst. Credibility is vital in this kind of career. And remember that people will observe you closely especially because money is involved.


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