Financial Statement Analysis

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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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Financial Statements

    Records that outline the financial activities of a business, ...
  2. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  3. Profit and Loss Statement - P&L

    A financial statement that summarizes the revenues, costs and ...
  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. Convention Statement

    A document filed by an insurance or reinsurance company that ...
RELATED FAQS
  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 >>
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