Goals of Financial Statement Analysis: Assessing a Company's Financial Health

Financial statement analysis assesses a company's financial health, supports management decision-making, and provides valuable information to investors.

1. Assessing a Company's Financial Health

Assessing financial health involves evaluating a company's financial status to determine its sustainability. Financial statements clearly show the asset, liability, and capital structure, allowing for the measurement of financial health.

• Assets: Evaluates the value of all assets a company owns. This includes various forms such as cash, deposits, real estate, and machinery.
• Liabilities: Identifies all debts a company has. This includes short-term and long-term liabilities, loans, and debts.
• Capital: Represents a company's net assets, calculated by subtracting liabilities from assets. Capital is a crucial indicator for assessing a company's stability.

Financial health assessment provides crucial information regarding a company's long-term viability.

2. Supporting Management Decision-Making

Accurate accounting information analysis is essential to support management decision-making. Financial statements provide crucial data for managers to make strategic decisions.

• Profitability Analysis: Analyzes sales, net income, and operating income to evaluate a company's profitability. This helps management develop strategies to increase profitability.
• Efficiency Analysis: Analyzes asset turnover, inventory turnover, etc., to assess a company's asset efficiency. This is useful in determining whether assets are being used effectively.
• Liquidity Analysis: Analyzes current ratios, quick ratios, etc., to evaluate a company's ability to repay short-term debts. This is important data for management in developing financial plans.

3. Providing Information to Investors and Creditors

Investor analysis provides crucial information to individuals or organizations intending to invest in a company. Financial statements play a key role in allowing investors to assess a company's financial state and make investment decisions.

• Risk Assessment: Financial statements are used to analyze a company's debt ratio, interest coverage ratio, etc., to assess investment risk.
• Profitability Assessment: Investors analyze financial information such as net income and dividends to evaluate investment profitability.
• Growth Potential Assessment: Revenue growth rate and profit growth rate are analyzed to assess a company's long-term growth potential.

4. Meeting Legal and Regulatory Requirements

Financial statement analysis is essential for meeting legal and regulatory requirements. This is crucial evidence demonstrating a company's compliance with the law.

• Compliance with Accounting Standards: Financial statements must be prepared in accordance with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
• Regulatory Agency Requirements: Financial statements must meet the requirements of regulatory agencies such as tax authorities and financial supervisors.
• Auditing: External auditors review the accuracy and reliability of financial statements to assess whether legal requirements are met.

5. Forecasting a Company's Long-Term Growth

Financial statement analysis helps predict a company's long-term growth potential. Future business performance can be predicted and strategic plans developed based on financial data.

• Sales Forecasting: Past sales data is analyzed to predict future sales.
• Profit Forecasting: Past profit data is analyzed to predict future profits.
• Asset Growth Forecasting: The growth trend of assets is analyzed to predict a company's long-term asset growth.

Conclusion

By evaluating a company's future growth potential through financial statement analysis, management strategies can be developed more effectively.