6. Statement Analysis

Chapters 1 to 4 discussed the structure and purpose of income statements and balance sheets and how to use them for reporting purposes. This chapter, in conjunction with Chapter 7, “Ratio Analysis,” describes how to use the information in income statements and balance sheets to improve your insight into business operations.

No dollar amount in a financial report stands on its own—let alone the report itself. The knowledge that a company’s total operating expenses ...

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