chapter 12

FINANCIAL STATEMENT ANALYSIS

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

  1. Explain why knowledge of the business is important when drawing conclusions about a company's future financial health.
  2. Describe the various ways of analyzing a company's financial statements.
  3. Identify the types of ratios that are best at providing insights for specific decisions.
  4. Calculate specific ratios that are used to assess a company's profitability, short-term liquidity, activity, and solvency, and explain how the ratios can be interpreted.
  5. Calculate and explain the uses of the earnings per share ratio and the price/earnings ratio.
  6. Understand the differences that might affect the ratio analysis of non-manufacturing or non-retail companies.
  7. Understand the need to exercise caution when interpreting ratios.
  8. Use ratios to assess a company's financial health through an analysis of its performance and financial position.

A Real-Life Exercise in Financial Management

Proper analysis of financial statements requires a good understanding of the statements' various ...

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