Financial Statement Analysis
Financial statements are documented records that communicate the financial activities and conditions of a business or
entity. Financial statements are supposed to convey the financial information and records of the entity in question as clearly and
concisely as possible for both the business and for readers
BREAKDOWN OF FINANCIAL STATEMENT
Financial analysts depend on data to
analyze the performance of, and make predictions about, the future direction of
a company's stock price. The annual report which contains the firm's financial statements is one of the most important resources of reliable and
audited financial data.
The Four major financial
statements are
- Income statement
- Statement of Retained Earnings
- Balance Sheet
- Statement of Cash flow
The Income Statement provides
income information over a given period by subtracting expenditures from revenue
which results to net income. The formula is stated below:
Income = Revenue - Expense
The Statement of Retained Earnings helps to provide the ending balance of retained earnings for a current period. This is done by adding
net income to the beginning balance of retained earnings and then subtracting
dividends which results to the ending balance of retained earnings.
Retained Earnings = (Beginning Balance of Retained Earnings + Net Profit) - Dividends
The Balance Sheet just summarizes
a company’s assets, liabilities, and stock holders’ equity at a specific time
(typically end of fiscal year). Below is the general format of the balance sheet:
Assets = Liabilities + Stock
Holder’s Equity
The Statement of Cash Flows is the movement in cash over a given period. This statement breaks down cash
only transactions during a business cycle in one of the following types:
- Cash flows from operating activities
- Cash flows from investing activities
- Cash flows from financing activities
Operating activities include all cash
flows made from normal business operations. Investing activities include cash
flows from the disposition and acquisition of assets, which include real estate and
equipment. Financing activities include cash flows from debt and equity
investment capital over a period of time
