Financial Statement Analysis

Running head: FINANCIAL STATEMENT ANALYSIS
FINANCIAL STATEMENT ANALYSIS
Name of the Student
Name of the University
Author Note

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FINANCIAL STATEMENT ANALYSIS
Executive Summary
The report is prepared to demonstrate the evaluation of the financial performance of Example
Corporation. Assessment of the financial position is done by evaluating the profitability and
liquidity position of the company. The interpretation of the financial statements of Example
Corporation is done for evaluating the financial health of the business. Such interpretation is
done by computing various ratios such as profit margin, gross profit margin, time interest earned
ratio, return on shareholders’ investment, working capital, quick ratio and current ratio. In
addition to this, report also demonstrates the comparison of the values computed with that of
industry value to measure the performance of company with that of industry.

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FINANCIAL STATEMENT ANALYSIS
Table of Contents
Introduction......................................................................................................................................3
Essential components of financial statements and their usage........................................................3
Three main accounting equations....................................................................................................5
Two assumptions used in Accounting.............................................................................................6
Summary of the finding from calculations:.....................................................................................7
Comparing with the industrial values:...........................................................................................10
Recommendations:........................................................................................................................11
Conclusion:....................................................................................................................................12
References list:...............................................................................................................................13

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FINANCIAL STATEMENT ANALYSIS
Introduction
A financial statement can be defined as an instrument, which is used to record the
financial performance of a company and provides information about the financial and operating
position of a company (insert citation). Various parties like external auditors, government
agencies and others audit these. The accuracy of these statements is of primary importance to all
their users as any misleading information can lead to bad decisions. They also suffer from other
inherent limitations like assumptions, unavailability of information at the time of preparation and
variations of interpretations among its users. It is universally accepted that great care should be
taken in the preparation of financial statements. Like every scientific approach, preparation of
financial statements is done using accounting equations which are the basis for the double entry
system. It also considers certain assumptions which are useful in the classification of items and
their treatment in the financial statements.
Essential components of financial statements and their usage
There are various types of financial statements prepared by a company in a given
financial year which record different aspects of a business. Some of the most prominent financial
statements are Balance Sheet, Income statement and statement of cash flow. The balance sheet
keeps a record of the assets, liabilities and the total equity of the company at a specific point in
time. It is used mostly to determine the net worth of the company which means how much is the
value of the company after meeting all of its liabilities with its current resources. Although it is
considered to be a very reliable source of information, it suffers from its own limitations. One of
them is the time factor. The balance sheet provides information only for a specific period of time.
Hence its usefulness diminishes with the passage of time and it is needed to be prepared again
for a different period. Another limitation is the accounting system used in the preparation of all