| 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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