Question

explain the different financial records you would analyze to assess the company’s financial strength

Answer 1

The major financial records that one would analyze to assess the company's financial strength:

1. Income statement : The income statement as the name suggests is used to analyze the incomes of the business and the profit or loss situation of the company. A profitable company certainly has a better financial strength than a loss making one. However, one must carefully analyze if the profits are from operating or non operating activities.

2. Balance sheet: The company's balance sheet is used to assess the firm's financial position i.e. the assets and liabilities. Assets indicate what the company owns and liabilities are what it owes. An overleveraged company does not certainly indicate sound financial health.

3. Cash flow statement : It indicates the cash flows of the company under heads of operating activities, financing and investing activities. It shows where the company is raising cash from and where it is spending it.