Analysis of financial statements

All the information you need to know about the company is found in only a few documents issued for public analysis (if this is an open joint stock company) annually. Of course, you will not be able to learn about some important things, such as, for example, the progress made in research developments, since this is confidential information, but what is publicly available information should be enough to form a general idea of State of affairs of the company. Analysis of financial statements will help you determine what the company's profit for the reporting period was, compare it with previous periods, analyze the financial stability of the enterprise, the structure of assets, etc.

Such an analysis can be done, as already mentioned, having studied 5-6 basic public documents, and in order to produce a basic analysis of financial statements, you will have enough and three. The three main public documents are the balance sheet, which focuses on the assets and liabilities of the enterprise; The profit and loss account, from which you can get information about how the company earned its profits; A cash flow statement that specializes in the circulation of cash.

It is necessary to start the analysis of financial statements from the balance sheet. The first thing that it should pay attention to is the structure of assets. Based on the state of the company's assets, we can draw a conclusion about the prospects of the company's development. If the assets of the enterprise are mainly non-current, it means that the company expects success in the long term, and short-term setbacks should not confuse potential investors. On the other hand, this may indicate the inability of the enterprise to pay off its current obligations.

As far as the structure of liabilities is concerned, special attention should be paid to the correlation of assets with circulating assets when performing an analysis of financial statements. If the company has too many debts, and there are no funds to repay them, then this raises doubts about the possibility of issuing new loans to the company.

Having studied the balance sheet, we turn to the analysis of the profit structure. In addition to the final figure, we are also interested in how exactly the profit was earned. The most important is profit from the main activity, as it is not accidental, and based on it you can make long-term forecasts about the fate of the enterprise. In addition, it is necessary to analyze, at the expense of which there have been changes in the dynamics of profit. This may be due to price changes, lower costs or other factors. It is important for the investor to determine whether profit growth is caused by a competent policy of the management company, or was the result of a successful combination of circumstances on the market.

We finalize the analysis of the financial statements by the cash flow statement. Cash can be directed to current needs and to invest, while their source is the company's financial activity and sales revenue. The effectiveness of control over the receipt and expenditure of cash is an indicator of the work of the company's managers.

If you are interested in more in-depth information, you can look at the report on capital flow, which is used to analyze the financial performance of the company: as well as some other documents. Despite the fact that such an analysis, called rapid analysis, can not be called profound, its speed is the advantage. On the basis of the same result, in most cases it can be concluded whether it is worth investing in a particular company.