Mastering Financial Statement Analysis for Business Growth

Financial Statement Analysis: Objectives and Importance

The overall objective of a company is its market survival and the growth of its economic capacity. Its basic objectives include obtaining the maximum return on investment in economic activity and maintaining a solvent situation regarding obligations and debts. To monitor and verify the achievement of these aims and objectives, the analysis of financial statements is essential.

Key Stages of the Accounting Process

The accounting process consists of a series of tasks and procedures, which are:

• Accounting for the information
• Verification of the information
• Analysis and interpretation of data

Purpose of Financial Information Analysis

This study investigates the analysis of financial information, analytical techniques, and procedures to draw conclusions from observations. The interpretation of these observations is carried out with the aim of obtaining information that is helpful to the different economic agents related to the company. These economic agents include the company owners, administrators or managers, potential investors, business creditors, and, in general, a broader set of stakeholders.

Stages of Financial Analysis

A series of stages are considered in financial analysis:

1. Manipulation of information
2. Data analysis
3. Interpretation and comparison
4. Forecasts
5. Proposals

Techniques and Perspectives in Financial Analysis

We can perform financial analysis from two different perspectives:

• Static Analysis: Examines the financial situation from a specific point in time, without comparisons.
• Dynamic Analysis: Involves comparisons with other periods or other companies to identify trends and changes.

Before proceeding with the analysis, a number of issues must be taken into account:

• Price changes
• Impact of seasonal variations
• Incidence of accidental variations
• Seasonal differences

Tools for Financial Analysis

One way to study a company's balance sheet is through the graphical representation of its patrimonial groups. This method proportionally shows their relevance to the assets or liabilities.

A ratio is an indicator that relates two economic magnitudes. In the study of financial statements, a ratio analyzes a specific aspect of the company's situation by comparing two values expressed as a relative proportion. It helps determine if a value is near an optimum or a critical point. For example, the liquidity ratio is calculated as the ratio of current assets to current liabilities.

Types of Financial Statement Analysis

Financial statement analysis is classified into three types:

• Equity Analysis
• Financial Analysis
• Economic Analysis

The aim of these types of analysis is to check and verify if the company is in a balanced situation across various aspects, including its asset balance, financial stability, and economic balance.