Steps of a Financial Statement Analysis

Steps of a Financial Statement Analysis

1.Establish objectives of analysis.
2.Study the industry in which firm operate s and relate industry climate to current and projected economic developments.
3.Develop knowledge of the firm and quality of managements.
4.Evaluate financial statements:
a.Tools: Common size financial statements, key financial ratios, trend analysis,structural analysis,and comparison with industry competitors.
b.Mayor Areas: Short-term liquidity,capital structure and long term solvency,operating efficiency and profitability ratio,market ratios,and segmental analysis,(when relevant).
5.Summarize findings based on analysis and reach conclusions about firm relevant to the established objectives
a.Strengths
b.Weakness

(Adaptation from:Understanding Financial Statements by Fraser& Ormiston fifth edition)