Chapter 5. Financial Ratio 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 provides managers with an understanding of a company’s financial performance, competitive situation, and future prospects. It also gives insight into the company’s financial decision making and its 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 ...

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