Financial
statement analysis
Financial statement analysis (FSA) is a general term used
to describe the activity of interpreting and using, as opposed to preparing, financial
statements, primarily accounting data. It therefore extends from professional financial
analysts employed at great expense by financial institutions for their skill at 'reading
between the lines' of company balance sheets to employees and potential employees who
simply want to know things such as how well the firm is doing and who owns it. The
traditional tools of FSA are financial ratios, including profitability, activity, the
management of working capital, growth, liquidity, the balance sheet, capital structure and
investment data. Traditionally, financial analysts have used historical ratios combined
with experience and judgement; recently, the development of powerful statistical
techniques and databases has resulted in the application of statistical mechanical methods
which can be used to make forecasts and predictions.
Paul Barnes
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