Financial Statement Analysis


DEFINITION of 'Financial Statement Analysis'

The process of reviewing and evaluating a company's financial statements (such as the balance sheet or profit and loss statement), thereby gaining an understanding of the financial health of the company and enabling more effective decision making. Financial statements record financial data; however, this information must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers and other interested parties.

BREAKING DOWN 'Financial Statement Analysis'

Financial statement analysis is an evaluative method of determining the past, current and projected performance of a company. Several techniques are commonly used as part of financial statement analysis including horizontal analysis, which compares two or more years of financial data in both dollar and percentage form; vertical analysis, where each category of accounts on the balance sheet is shown as a percentage of the total account; and ratio analysis, which calculates statistical relationships between data.

  1. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  2. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  3. Financial Statements

    Records that outline the financial activities of a business, ...
  4. Annual Report

    1. An annual publication that public corporations must provide ...
  5. Income Statement

    A financial statement that measures a company's financial performance ...
  6. Encumbrance

    A claim against a property by a party that is not the owner. ...
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  1. What is the difference between a P&L statement and a balance sheet?

    Two of the most important financial statements in financial accounting, the balance sheet and income statement (also called ... Read Full Answer >>
  2. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  3. Can working capital be negative?

    Working capital can be negative if a company's current assets are less than its current liabilities. Working capital is calculated ... Read Full Answer >>
  4. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  5. Does working capital include prepaid expenses?

    The calculation for working capital includes any prepaid expenses that are due within one year, since such prepaid expenses ... Read Full Answer >>
  6. Does working capital include short-term debt?

    Short-term debt is considered part of a company's current liabilities and is included in the calculation of working capital. ... Read Full Answer >>

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