Financial Statement Analysis author’s Corners Video
- What are the main objectives of ratio analysis and why is this important to external users of the financial statements, such as investors? Who else might find these ratios useful and why?
- What are the main objectives of comparative analysis and why is this important to external users of the financial statements, such as investors?
- The main objective of a comparative analysis is to scale the financial statements of two different companies to allow for an equal comparison. This is especially useful when companies are in the same industry but very different in size. The comparative analysis allows external users to easily see the differences between companies. Investors would use this information when deciding where they should invest their capital. The comparative analysis identifies red flags and can highlight relative strengths and weaknesses in a company.