Analyzing Performance Management and Financial Statements
The best way to analyze performance management is to get your information directly from the source. The source is the annual report which contains the company's financial statements. Each financial statement provides information about how the company is operating. The income statement provides information about earnings, the balance sheet provides information about the company's assets and liabilities, and the cash flow statement provides information about the sources and uses of cash. Analysts use information from all three financial statements to create ratios which compare operational efficiency.
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Instructions
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Obtain the annual report. You can usually download the annual report from the company's website or by contacting the Investor Relations department for the company.
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Analyze profitability. Profitability is one of the most popular measures of performance. The income statement contains three different measures of income at three different cost levels. Gross profit is sales minus the costs of goods sold, operating profit is gross profit minus operating costs, and net income is operating profit minus taxes and interest expense (if any).
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Measure the size of the company. Company size is a function of assets which are listed on the balance sheet. To get a complete picture of the size of the company, subtract liabilities from assets. This number is the true value of company assets and is commonly used as a proxy for book or liquidation value.
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Turn to the cash flow statement. The cash flow statement tells the investor where the company is generating and spending cash. There are three sections to the cash flow statement, they are cash flows from operations, investing and financing. In general, investors want to see companies generate cash flows from operations, however, it is common for a growth company to be generating more cash from financing activities.
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