## What is Financial Statement Analysis?

Financial Statement Analysis is the process of understanding the fundamentals of the company by reviewing its financial statements namely the Income Statement, Balance Sheet and Cash Flows. Financial Statement Analysis can be performed in a structured way using Ratio Analysis. Typically, such financial analysis is done over a series of reporting periods (using the Horizontal Analysis and Vertical Analysis).

Financial Statement Analysis includes comprehensively analyzing the company's liquidity ratios, turnover ratios, profitability ratios, efficiency ratios, dividend ratios, and debt ratios.

You can learn step by step Financial Statement Analysis from the following guide

Related Financial Statement Analysis Articles:

### Liquidity Ratios

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Liquidity ratio in Financial Analysis provides us with an understanding that whether the company will be able to serve its short-term liabilities (current liabilities) with the help of its short-term assets (current assets). This helps an analyst understand whether the company has enough cash in the system to survive for atleast one operating cycle. Liquidity Ratios include current ratios, quick ratio, cash ratio, defensive interval ratio and working capital ratio.

#### 30 RESOURCES

- Cash Ratio
- Cash Ratio Formula
- Quick Ratio
- Quick Ratio Formula
- Current Ratio
- Current Ratio Formula
- Acid Test Ratio Formula
- Defensive Interval Ratio
- Working Capital Ratio
- Working Capital Formula
- Net Working Capital Formula
- Changes in Net Working Capital
- Change in Net Working Capital (NWC) Formula
- Cash Flow from Operations Ratio
- Cash Flow Per Share
- Cash Reserve Ratio
- Operating Cycle Formula
- Current Ratio vs Quick Ratio
- Bid Ask Spread
- Liquidity vs Solvency
- Liquidity
- Accounting Liquidity
- Solvency
- Solvency Ratios
- Equity Ratio
- Capital Adequacy Ratio
- Cash Reserve Ratio Formula
- Liquidity Risk
- Altman Z Score

### Turnover Ratios

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This ratio in financial analysis helps us understand the how effectively the firm is utilizing its resources. This ratio effectively tracks the flow of cash from sales activity to receivables, inventory, and payables. Turnover Ratios include the inventory turnover, receivables turnover and payables turnover. Also, you can calculate the cash conversion ratio using the three turnover ratios to find out the length of cash cycle.

#### 18 RESOURCES

- Inventory Turnover Ratio
- Inventory Ratio
- Accounts Receivable Turnover
- Accounts Receivables Turnover Ratio
- Accounts Payable Turnover Ratio
- Days Inventory Outstanding
- Days in Inventory
- Days Sales Outstanding
- Days Sales Uncollected
- Average Collection Period
- Days Payable Outstanding
- Cash Conversion Cycle
- Cash Conversion Cycle (CCC) Formula
- Activity Ratios
- Fixed Asset Turnover Ratio Formula
- Debtor Days Formula
- Working Capital Turnover Ratio

### Profitability Ratios

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Profitability Ratios in Financial analysis are that helps us understand whether the company is able to generate enough sales relative to its expenses during a specified period. This is one of the most popular ratios used by Financial Analysts and they include the gross margin, EBIT Margin, EBITDA Margin and the Net Profit Margin. Other popular ratios are the Return on Equity, Return on Invested Capital

#### 67 RESOURCES

- Profitability Ratios Formula
- Common Size Income Statement
- Vertical Analysis of Income Statement
- Profit Margin
- Profit Margin Formula
- Profit Percentage Formula
- Profit Formula
- Gross Profit Margin Formula
- Gross Profit Percentage
- Operating Profit Margin Formula
- EBIT Margin Formula
- Operating Income Formula
- Net Profit Margin Formula
- EBITDA Margin
- Degree of Operating Leverage Formula (DOL)
- NOPAT Formula
- OIBDA
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Equity Ratio
- Return on Capital Employed (ROCE)
- ROCE Formula (Return on Capital Employed)
- Return on Invested Capital (ROIC)
- Return On Investment (ROI)
- Rate of Return on Investment
- Return on Sales
- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
- ROIC vs ROCE
- ROE vs ROA
- CFROI
- Cash on Cash Return
- Return on Total Assets (ROA)
- Return on Total Assets Formula
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Unit Contribution Margin
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- EBITDAR
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Variable Costing Formula
- Capitalization Rate
- Cap Rate Formula
- Comparative Income Statement
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula
- Markup
- Markup Percentage Formula

### Efficiency Ratios

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Efficiency ratios in Financial Analysis measures how effectively the company makes use of its assets relative to its liabilities (equities) for generating sales. Efficiency ratios include the asset turnover ratio, equity turnover ratio, and equity multiplier.

### Dividend Ratios

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The company generally shares a part of its profit with its shareholders via dividends in a given period. This share of profit in form of dividends depends on the growth phase of the company. Dividend Ratios capture the relative value of this part using the dividend payout ratio, plowback ratio, and the retention ratio.

### Debt Ratios

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This financial statement analysis ratio provides us with an understanding of how much the company is dependent on debt relative to equity. Debt Ratios are of various types including the debt to equity ratio, capital gearing ratio, DSCR Ratio, interest coverage ratio and more.

#### 26 RESOURCES

- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Asset Ratio Formula
- Coverage Ratio
- Coverage Ratio Formula
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Gearing Ratio Formula
- Capitalization Ratio
- Overcapitalization
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- DSCR Formula (Debt service coverage ratio)
- Financial Leverage Ratio
- Financial Leverage Formula
- Degree of Financial Leverage Formula
- Net Debt Formula
- Leverage Ratios
- Leverage Ratios Formula
- Leverage Ratios for Banks
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
- Solvency Ratio Formula

### Ratio Analysis

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- Ratio Analysis Types
- Importance of Ratio Analysis
- Ratio Analysis Limitations
- Financial Ratios
- Accounting Ratios
- Trend Analysis
- Vertical Analysis
- Financial Analysis
- Examples of Financial Analysis
- Financial Analysis Tools
- Types of Financial Analysis
- Types of Financial Ratios
- Vertical Analysis Formula
- Common Size Balance Sheet
- Horizontal Analysis
- Balance Sheet Ratios
- Beneish M-Score