In This Chapter
• The basics of financial analysis
• Measuring liquidity ratios
• Understanding solvency ratios
• Analyzing profitability ratios
In Chapters 11 and 12, I showed you the basics of balance sheets, income statements, and cash flow statements. Simply reading a financial statement will tell you something—but not much. You’ll see the dollar amounts of the accounts, and, if you have at least two years of statements, you’ll see whether an account increased or decreased.
But to really understand a company, you must analyze its financial statements. Aside from a basic understanding of the accounts, this requires some simple calculations.
In this chapter, you learn basic financial statement analysis—how to look ...