6. Financial Ratios and Statement Analysis
Description and Purpose
A company’s published annual report and accounts usually contain a bewildering array of figures, which are often difficult to analyze. Financial statement analysis helps managers understand a company’s financial performance, competitive situation, and future prospects. It also gives insight into the company’s financial decision-making and operating performance. Ratio analysis provides insights into the relationships between two or more amounts in a company’s financial statements.
Basic Concepts Underlying Financial Ratio and Statement Analysis (FRSA)
The basic equation that expresses the relationship of assets and claims on assets is called the accounting equation:
assets = liabilities ...
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