4.1 Why Do We Analyze Financial Statements?
A firm’s financial statements can be analyzed internally by someone within the firm or externally by bankers, investors, customers, and other interested parties. Internal financial analysis is performed by a firm’s own employees. Non-employees from outside the firm perform external financial analysis.
There are several reasons an internal financial analysis might be done:
To evaluate the performance of employees and determine their pay raises and bonuses
To compare the firm’s different divisions in terms of their financial performance
To prepare financial projections, such as those associated with the launch of a new product
To evaluate the firm’s financial performance in light of its competitors’ ...
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