Financial statement ratio analysis. The balance sheet the income statement and the statement of cash ows. Ratio analysis of financial statements this is the most comprehensive guide to ratio analysis financial statement analysis. Analyzing your financial ratios.
These are prepared at regular intervals and typically contain at least a balance sheet and an income statement. Financial ratio analysis can provide meaningful information on company performance to a firms management as well as outside investorscalculating the ratios is relatively easy. Financial statement analysis is the process of analyzing a companys financial statements for decision making purposes and to understand the overall health of an organization.
Profitability ratios and activity ratios. Financial statements are prepared by companies to demonstrate its financial activity to stakeholders. Financial statement analysis is a method of reviewing and analyzing a companys accounting reports financial statements in order to gauge its past present or projected future performance.
Financial ratios are usually split into seven main categories. Liquidity solvency efficiency profitability equity market prospects investment leverage and coverage. Since 1919 rma has been the leader in providing the industry with reliable and accurate financial benchmarking figures including standards for balance sheet and income statement line items and 19 classic industry average ratios such as the current ratio quick ratio and turnover ratios.
Here i have taken colgate case study and calculated ratios in excel from scratch. Any successful business owner is constantly evaluating the performance of his or her company comparing it with the companys historical figures with its industry competitors and even with successful businesses from other industries. Financial ratio analysis compares relationships between financial statement accounts to identify the strengths and weaknesses of a company.