You now know how financial statements are prepared, so the next step is to appreciate what they are telling you about a business. For example, you might want an answer to the following questions:

  • Can I earn a better return on my money by investing it elsewhere?
  • How is my business performing compared to other similar businesses?

You might also want to assess the financial state of a business you want to buy, which I’ll detail more in Chapter 11. In accounting, it is possible to give answers to such questions by comparing and analysing financial statements. In essence, what we are trying to do is to make the numbers in the financial statements ...

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