Explain the role of financial statement analysis and name some common economic decision in mind when performing the analysis

March 20th, 2011 Comments off
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The role of financial statement analysis is to take financial reports prepared by companies, combined with other information to evaluate the past, current and prospective performance and financial position of a company for the purpose of making investment, credit and other economic decisions.

Some of the common economic decision in mind when performing the financial statement analysis  are:

  • Evaluating a merger or acquisition candidate
  • Evaluating a subsidiary or operating division of a parent company
  • Evaluating an equity investment for inclusion in a portfolio
  • Deciding whether to make a venture capital or other private equity investment
  • Extending credit to a customer
  • Examining compliance with debt covenants or other contractual arrangements
  • Assigning a debt rating to a company or bond issue
  • Valuing a security for making an investment recommendation to others
  • Forecasting future net income and cash flows

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Financial Accounting


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