Financial Analysis - Public Company

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In assessing the significance of various financial data, experts engage in financial analysis, the process of determining and evaluating financial ratios and common size reports.

A financial ratio is a relationship that indicates something about a company's activities, such as the ratio between the company's current assets and current liabilities or between its accounts receivable and its annual sales. The basic source for these ratios is the company's financial statements that contain figures on assets, liabilities, profits, and losses.

Ratios are only meaningful when compared with other financial information. Since they are most often compared with competitors or industry data. Financial ratios help an individual understand a company's performance relative to that of competitors and are often used to trace performance over time.

Financial analysis can reveal much about a company and its operations. However, there are several points to keep in mind about a ratios or common size datapoint. First, each datapoint is a "flag" indicating areas of strength or weakness. One or even several datapoints might be misleading, but when combined with other knowledge of a company's management and economic circumstances, financial analysis datapoints can tell much about a corporation. Second, there is no single correct value for a ratio or common size percentage. The observation that the value of a particular datapoint is too high, too low, or just right depends on the perspective of the analyst and on the company's competitive strategy. Third, financial ratio or common size datapoints are meaningful only when compared with some standard, such as an industry trend, ratio trend, a trend for the specific company being analyzed, or a stated management objective.

In trend analysis, financial ratios or common size percentages are compared over time, typically years. Year-to-year comparisons can highlight trends and point up the need for action. Trend analysis works best with five years of analyzed data.

The second type of financial analysis, cross-sectional analysis, compares the ratios or common size datapoints of two or more companies in similar lines of business. Highly recommended by VentureLine is one of the most popular forms of cross-sectional analysis: comparing a company's financial ratios or common size financial statements to the industry in which the company competes.

Our VentureLine financial analysis report is broken down into the various categories:

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