FINANCIAL STATEMENT ANALYSIS: APPLICATIONS
After completing this chapter, you will be able to do the following:
- evaluate a company's past financial performance and explain how a company's strategy is reflected in past financial performance;
- forecast a company's future net income and cash flow;
- describe the role of financial statement analysis in assessing the credit quality of a potential debt investment;
- describe the use of financial statement analysis in screening for potential equity investments;
- explain appropriate analyst adjustments to a company's financial statements to facilitate comparison with another company.
This chapter presents several important applications of financial statement analysis. Among the issues we will address are the following:
- What are the key questions to address in evaluating a company's past financial performance?
- How can an analyst approach forecasting a company's future net income and cash flow?
- How can financial statement analysis be used to evaluate the credit quality of a potential fixed-income investment?
- How can financial statement analysis be used to screen for potential equity investments?
- How can differences in accounting methods affect financial ratio comparisons between companies, and what are some adjustments analysts make to reported financials to facilitate comparability among companies.