This chapter is devoted to how external investors and creditors analyze financial statements when making resource allocation decisions, specifically, how they use percentages, ratios, and other financial metrics to assess a company’s profitability, solvency, and liquidity. Financial statement analysis is complex, and most professional analysts are well versed in accounting, finance, economics, and mathematical modeling. The purpose of this chapter is to provide a hands-on introduction of the terminology and concepts unique to this fascinating topic.
The financial statements of a hypothetical retail clothing business—Fashions By Soges—will be used to illustrate the analysis process. The discussion will focus ...
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