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Analysising the Financial Statement

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Submitted By hongthamla12
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2059T_c05_150-188.QXD 06/29/2006 06:16 PM Page 150

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5
ANALYSIS OF FINANCIAL
STATEMENTS
Reviewing and Assessing Financial Information
Starting Point
Go to www.wiley.com/college/Melicher to assess your knowledge of the basics of financial statement analysis.
Determine where you need to concentrate your effort.

What You’ll Learn in This Chapter








The five basic types of financial ratios
How to use financial ratios properly in order to achieve financial growth
When to use specific ratios in different situations
How internally generated financing occurs
The effect of ratio analysis on long-term financial planning
How to read a financial statement
The application of the cost-volume-profit analysis concept

After Studying This Chapter, You’ll Be Able To







Distinguish the three categories of ratio analysis
Compare and contrast financial statements from different companies
Examine the link between asset investment and sales growth
Apply the major components of Du Pont analysis
Analyze the quality of financial reports
Use analysis methods to evaluate profit levels

Goals and Outcomes







Analyze and interpret financial statements
Explain the categories of ratio analysis
Perform the basic types of financial ratios
Manage the application of ratios to evaluate business performance
Prepare the requirements for external financing
Evaluate the financial viability of particular business alternatives

2059T_c05_150-188.QXD 06/29/2006 06:16 PM Page 151

FIRST PAGES

5.1 FINANCIAL STATEMENT ANALYSIS

INTRODUCTION
Now that you have studied the structure of business organizations and learned about financial data and how it is presented, it is time to move on to the next step in financial management. Analyzing financial statements is a skill shared by bankers,
investors,

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