Just Do It: Basic Tips on how to perform a Financial Statement Analysis

One of the basic definitions of Financial Statement Analysis is that it is a process of analyzing and evaluating the financial statements of a company. By doing this kind of method, you can acquire knowledge on the financial status of the company. It also allows you to be more competent in decision making.

To know and appreciate a company and since they’ll put money in it, the investors will have to look at the financial situation of the company. Luckily, this is not as complex as it sounds. Here are six steps to a productive financial statement analysis.

Evaluate the Current Risk and Profitability

Financial statement ratios are the most known analysis tool about asset management, liquidity, debt management, and profitability. It is essential to have an understanding of how to separate measures of investment return into the principal impact factors.

You should also evaluate your financial statement ratios relatively and study the present ratios and those preceding to that or analogous to other companies or their averages.

Evaluate your Financial Statements

Try to study the different financial statements within the framework because it will help you determine your accounting standards. Analyzing issues like balance sheet accounts are one of the best keys to having an appropriate evaluation of your business.

When analyzing your income statement, you also want to evaluate the characteristics of your profit as the entire representation of the economic performance of the company.

Economic Characteristics

The main goal of this strategy is to determine what activities are the most beneficial to the company and which one needs improvement. You can use the analysis of economic attributes or Porter’s Five Forces in this step.  An effective financial statement analysis needs you to have a full understanding of the company’s economic characteristics.

Formulate your Financial Statements

Preparing the forecasted financial statements can be quite challenging. You must create a realistic assumption about the future state of the company. The forecast will record all the historical data and will contain the projected external market factors.

Do not underestimate or overestimate the profit your business will gain. Having a trusted firm like Ashe Morgan or friend is an excellent idea to scrutinize your forecasted statements.

Value of the Firm

For you to know the value of the company, an investor must evaluate the current value of the cash flow. Even if there’s a lot of strategies that you can choose, the cash flow methodology is one of the most important and common ones.

Cash flow can be in the form of predicted dividends or a much more comprehensive technique. A company that is expecting to expand their profit is agitated with maximizing the company’s value. So, it is essential for a company to determine the company’s accurate value.

Company Strategies

Always study and determine the quality of the services or product that is provided by the company, the level of income margins, its uniqueness, handling of the costs and development of brand sincerity.

You should also consider the industry diversification and aspects of the geographic, and the supply chain integration. One of the strategies of a company is to interpret the methods and tactic that you will use to control your business.

The best products, management, services, and goals are nothing without your company’s strategy. Without having a business strategy, it is absurd for a company to have a long-term method or plan to accomplish goals, which are key to various sort of strategic planning.

For you to have an effective business game plan, always follow these simple strategies because these are very important factors that you should always consider in your business.

Reduced Taxes and Fees

Selling and trading in the market are not free. There are some hidden taxes and fees that you need to consider. These expenses can equate to about 30 percent of your gains if you do not manage or don’t know how to handle them from the beginning.

Learn how to lessen your costs before you even think of investing. Study the taxes and fees involved in your business for you to determine if any extra charges are worth paying. If there are additional and unwarranted costs, then you have to have discipline in spending your funds. Taxes and fees are matters that you shouldn’t take lightly.


Financial Statement Analysis is an important and significant tool for your company. Such insights can help you enhance the value, cash flow, profitability, and lets you know of what things you need to improve.

All you need to do is to determine and follow all the tips and ideas that are given above. Always consider the industry economic characteristics and identify the company strategies.


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