Balance Sheet Analysis:
Assets: Represents what the company owns, including cash, accounts receivable, inventory, and equipment.
Liabilities: Represents what the company owes, such as accounts payable, accrued expenses, and long-term debt.
Owner’s Equity: Shows the owner’s investment in the business.
Financial Ratios: Calculate ratios like the current ratio and debt-to-equity ratio to assess liquidity and leverage.
Income Statement Analysis:
The income statement shows a company’s revenues, expenses, and net income over a period.
Analyze:
Revenue Trends: Look for consistent growth or decline.
Profit Margins: Calculate gross profit margin and net profit margin.
Operating Expenses: Assess efficiency by examining operating expenses relative to revenue.
Earnings Per Share (EPS): Divide net income by the number of outstanding shares.
Cash Flow Statement Analysis:
Tracks cash inflows and outflows from operating, investing, and financing activities.
Focus on:
Operating Cash Flow: Positive operating cash flow indicates a healthy business.
Investing and Financing Activities: Evaluate capital expenditures, debt repayments, and equity financing.
Free Cash Flow: Subtract capital expenditures from operating cash flow.
Financial Ratios:
Use ratios to gain deeper insights.
Liquidity Ratios: Assess short-term solvency.
Profitability Ratios: Measure efficiency in generating profits.
Leverage Ratios: Evaluate debt levels.
Activity Ratios: Analyze efficiency.
Compare these ratios with industry benchmarks for context.
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