In: Finance
Please give us one example from your research, work, or personal life of an application whilw Describing what concepts of Financial Economics and the contexts within which it is practiced. Describe the elements of financial statement analysis and how they are applied Explain the principles of Finance Describe how these principles apply in managerial and economic contexts.
If I was going to teach you how to analyze financial statements and I only had a short time, honestly that would be tough. There are so many items to look at on just the 2 most important financial statements, which are:
However if someone locked me up and said the only way you can get out is if you explain financial statement analysis in 2 minutes, here's what I would say:
It should be obvious as to why these are the two most important things on statements.
If a company is not profitable, well that company will not last very long and will eventually shut down. Whether the amount of profit is enough, that's very subjective and involves a more detailed analysis.
And without cash flow, the company can't buy things when needed, in order to grow, or in an emergency. Now you may be able to get investors to cover a cash flow shortage, but ultimately it's a good business practice to always be able to pay down your short term debts at any given time. Otherwise one little error and the company goes under.
And there are a million other things to look at on the statements but that's my interpretation of a quick look at financial statement analysis.