Financial statement analysis is an extremely useful tool in understanding the financial performance of any company. It allows you to determine a business’s
current position with regards to its commercial strengths (e.g.
Customer base) and weaknesses (e.g. Volatile costs). It also gives an
understanding of the key drivers of the business through multiple
factors. This can include strategic, economic aspects as well as accounting
and financial; all of which can tell strikingly different stories.
Being able to tell the overall story behind these numbers is an
invaluable tool not just for investors, but also people who run their
From an entrepreneurial perspective, having a sound understanding of financial statement
analysis can be crucial to business success. Knowing your own
financials, can be the quickest and in many cases the most efficient
way to pitch a business to investors.
I recently produced a presentation on Pearson; the world’s largest education company. I analysed the financial statements in depth, using it to build a financial model.
With the information from the financial statement I was able to
forecast its future prospects, and ultimately create a valuation of the
company. From there I was able to value Pearson stock, and compare it to the current price with commentary.
you see, financial statements itself hold a lot of information that
can be used for multiple purposes. However, through my experience
understanding how to interpret the statements is where most people have
difficulty and therefore are not able to reap the full benefits.
is a simple booklet designed by CFA alumni, teaching you how to read
the 4 main financial statements in less than 5 minutes: How to Read Financial Statements
. It is designed to cater for people with any level of proficiency in
finance, whilst still being technical enough for academic students.
Jun 11th, 2015
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