Financial Statement Analysis and Financial Models - ENGINEERING MANAGEMENT

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Financial Statement Analysis and Financial Models pdf Financial Statement Analysis: Financial statement analysis is a process of s...

Financial Statement Analysis and Financial Models

Financial Statement Analysis and Financial Models pdf
Financial Statement Analysis and Financial Models pdf

Financial Statement Analysis:

Financial statement analysis is a process of selecting, evaluating, and interpreting financial data, along with other pertinent information, in order to formulate an assessment of a company’s present and future financial condition and performance.

Financial statements provide the most widely available data on public corporations’ economic activities 
So, investors and other stakeholders rely on financial reports to assess the plans and performance of firms and corporate managers.

Financial statement analysis is also important in: 

  • Assessing management performance of a company and whether projections of improvement or sustainability are reasonable.
  • Assessing the value of a company from historic performance.
  • Assessing the reasonableness of financial projections provided by a company or the validity of earnings projections
  • Assessing whether the financial structure of a company is of investment grade quality
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Objectives of Financial Statement Analysis:

Financial statement analysis is like detective work – How can we use information in financial statements to make assessments of various issues. The financials should paint a picture of what has happened to the company: 
  • How can we quickly review the income statement, balance sheet and cash flow statement to determine how the stock market value of a company compares to inherent value.
  • How can we look the financial statements and assess risks associated with a company and whether the company has sufficient cash flow to pay off debt. 
  • Finance and valuation are about projecting the future--how can financial statement analysis be used in making projections. 
  • The problem in any financial analysis and valuation is that measuring risk is very difficult
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