Corporate Finance For Dummies

Chapter 7

Making Financial Statements Useful with Metrics Analysis

In This Chapter

Determining whether a company can pay all its bills on time with liquidity metrics

Evaluating how well a company generates and manages profits with profitability metrics

Using debt analytics to measure how effective a company is at managing its debt

Although accountants will try to convince you that a lot of different things go into building financial statements, by themselves these statements are really quite useless. Unless you know what to look for, you could stare at a financial statement for hours and accomplish little more than high levels of boredom. Fortunately, you can use financial metrics, or analysis equations, that turn the data in financial statements into numbers that explain how well a company is performing financially. Basically, you take all the data that an accountant compiles and turn it into something that can actually be helpful. Though they may sound complicated, financial metrics are actually pretty simple. All you have to do is pick out a few numbers from the three financial statements I cover in Chapters 4, 5, and 6 and apply the same math you learned when you were in elementary ...