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How to Make Your Financial Statement Analysis Assignment Look Perfect

What a financial statement analysis assignment involves

A financial statement analysis report is used to identify the trends and relationships between financial statement items. Company management and interested parties outside the company such as investors and creditors use the financial statements of a company to evaluate its profitability, efficiency, liquidity and solvency.

A financial statement analysis assignment will involve the analysis of these statements:

  • Balance sheet: A financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. It provides information on what the company owns and owes, and the amount shareholders have invested.
  • Income statement: A financial statement summarizes a company’s revenues and expenses and give the amount of net profit/loss for the period it covers
  • Statement of cash flows: A financial statement that shows the flow of money into and out of a company. It will be divided into three sections 1) Cash flow from operating activities, 2) Cash flow from investing activities and 3) Cash flow from financing activities

By performing different calculations and comparing the results to competitors, historical company data and industry averages it is possible to get a good idea of a company’s relative strength and performance.

How to do a financial statement analysis assignment

There are a number of different methods that can be used when doing a financial statement analysis. One of the most popular is through the use of ratio analysis.

There are:

  1. Liquidity ratios: Liquidity ratios measure a company’s ability to cover their expenses. Some popular liquidity ratios are:
    1. Current ratio: This is current assets divided by current liabilities. The larger the number the better with current ratio.
    2. Quick ratio: The formula for quick ratio is cash + accounts receivable + marketable securities)/current liabilities. Larger numbers are better with the quick ratio
  1. Efficiency ratios: Efficiency ratios provide an idea of how well a company is managing its resources. Some common efficiency ratios include:
    1. Asset turnover: The formula for asset turnover ratio is net sales/average total assets. It indicates how well assets are being used to produce sales. Again, bigger numbers are better.
    2. Debt to equity: The calculation for debt to equity is total liabilities/total equity. It shows the amount of capital in the company provided by creditors versus from investors. A smaller number is better here and if it reaches zero it means the company has no debt. how much of the capital in the company was provided
  1. Solvency ratios: Solvency ratios measure a company’s stability and how well it is able to repay debt. Some formulas for solvency ratios include:
    1. Debt-to-Worth Ratio: This provides the percentage of assets provided by creditors and uses the calculation Total Liabilities / Net Worth
    2. Working Capital: Not really a ratio but a number of interest to managers, investors and creditors. Working Capital = Total Current Assets – Total Current Liabilities
  1. Profitability ratios: Profitability ratios help show how well a company is doing at creating a profit.
    1. Return on assets: Net income/Average net assets. This ratio shows the amount of income generated by assets.
    2. Profit margin: Net Income / Net Sales

The key to a good financial statement analysis is to be thorough. Decisions should be based on more than one or two different aspects of a company. If you need help with a financial statement analysis project, forensic accounting report or any other accounting assignment we can assist you.

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