How to Analyze Company Financial Information
Financial information allows a company to look at challenges from an objective perspective. In business, if a project doesn't make money, you end the project. Financial information is used to determine the value of potential takeover targets, and to prepare budget reports. Financial information also allows potential investors to make informative investment decisions based on historical data. Once you've analyzed the data, it is important to interpret it. It is not usual to experience something referred to as analysis paralysis, so know when to finish your analysis and develop a conclusion.
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Instructions
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Obtain the annual report by downloading it from the company's website or by contacting the company's Investor Relations department.
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Turn to management's discussion of company financials. This section provides a summary of business highlights and challenges that can be used to explain the numbers within the financial statements.
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Turn to the income statement. The first line of the income statement is revenues followed by the cost of goods sold, operating costs, interest expense and a provision for income taxes. At the bottom of the income statement is the net income line, which is the company's profit or loss for the year.
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Turn to the balance sheet. The balance sheet provides a listing of the assets and liabilities of a company. Analysts use it to understand the company's size in terms of assets and how much debt the company holds.
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Turn to the cash flow statement. The cash flow statement provides an overview of the company's cash inflows and outflows. There are three ways for companies to make cash: through operations, investing, or financing. Growth company's tend to rely on investor funds, so cash flows from operations is negative and cash flow from financing is positive. Mature company's can rely on cash flow from operations.
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Read over the notes to the financial statements. The notes provide additional information about each line item in the financial statement and can be helpful if you need additional details.
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