Financial Statement Analysis

Providers of capital, lenders, competitors, employees among others are continually faced with making economic decisions with respect to economic entities. In so doing, many sources of information are used to make these decisions, with different levels of accuracy and precision.  Research has however shown that the decision-making process can be improved by the use of analysis of financial statements. Financial statements represent the summary of or the position at a particular date of the decisions taken by an entity, expressed in monetary terms. In preparing these financial statements, the preparers use a number of assumptions, judgments and estimates, within a defined framework, but which may have the impact of providing different outcomes in the financial statements. It is therefore imperative that analysts, in using financial statements, be conversant with the underlying rules, assumptions and factors used in the preparation of the financial statements and the impact on the results that they produce.