The Five Analytical Methods Of Financial Statements Must Be Clear.

If you want to have a thorough understanding of business performance and financial situation, a practical financial statement is essential. After getting the financial statements, you want to see useful information from complex accounting procedures and data, and you need to master practical analysis methods.

Here are five ways to analyze financial statements.

First, comparative analysis.

The purpose is to illustrate the quantitative relationship and quantitative difference between financial information, and to point out the direction for further analysis.

This comparison can be compared to the actual situation and the plan, it can be compared to the previous period or the other enterprises in the same industry.

Two, trend analysis

It is to reveal the changes in financial position and operating results and their causes and nature, so as to help predict the future.

The data used for trend analysis can be either absolute or rate.

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Three. Factor analysis

In order to analyze the degree of influence of several related factors on a financial index, we should generally rely on the method of difference analysis.

Four. Ratio analysis

Through the analysis of financial ratios, we can understand the financial situation and operating results of enterprises, often by means of comparative analysis and trend analysis.

The above methods have a certain degree of coincidence.

In practice, the ratio analysis method is the most widely used.

The main advantage of the financial ratio is that it can eliminate the impact of scale and compare the benefits and risks of different enterprises, so as to help investors and creditors make rational decisions.

It can evaluate the change of the income of an investment in different years, and it can also compare the different enterprises in a certain industry at a certain point.

Because different decision-makers have different information needs, the analytical techniques used are also different.

Generally speaking, the relationship between risk and return is measured in three aspects:

1, solvency:

Short term solvency: short-term solvency refers to the ability of enterprises to repay short-term debts.

Short term solvency is not enough, it will not only affect the credit of enterprises, increase the cost and difficulty of raising funds in the future, but also make enterprises fall into financial crisis or even bankruptcy.

Generally speaking, an enterprise should repay current liabilities with current assets instead of selling off long-term assets. Therefore, the short-term debt paying ability should be measured by the quantity relationship between current assets and current liabilities.

Long term solvency: long-term solvency refers to the ability of an enterprise to repay long-term interest and principal.

Generally speaking, enterprises borrow long-term liabilities mainly for long-term investment, so it is best to repay interest and principal with the proceeds from investment.

Usually, two indicators of debt ratio and interest income multiples are used to measure the long-term solvency of an enterprise.

2. Operational capability:

Operational capability is the efficiency of measuring the utilization of enterprise assets based on the turnover speed of various assets.

The quicker the turnover speed, the faster the assets of the enterprise will enter into the production, sales and other business links. The shorter the cycle of income and profits, the higher the operating efficiency will naturally be.

3. Profitability:

Profitability is the core of every concern, and also the key to success or failure of enterprises. Only long-term profits can enterprises continue to operate.

Therefore, both investors and creditors attach great importance to the ratio reflecting the profitability of enterprises.

Five. Cash flow analysis

The analysis of the enterprise's financial status and operating results is mainly achieved through the ratio analysis.

The commonly used financial ratios measure three aspects of the enterprise, namely, debt paying ability, operating ability and profitability.

The analysis of cash flow can not be achieved through the ratio analysis. Instead, it is required to evaluate the cash flow of enterprises from two aspects of the quantity and quality of cash flow, and then determine its ability to generate future cash flows.

Ratio analysis and cash flow analysis are different and irreplaceable.

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In the analysis, we did not consider the problem of cash flow, and we have already talked about the importance of cash flow to an enterprise. Therefore, let's take a look at how to analyze cash flow.

The analysis of cash flow should be considered from two aspects.

One aspect is the amount of cash flow. If the total cash flow is positive, it indicates that the cash inflow of enterprises can guarantee the need for cash outflow.

But how does a company ensure its cash outflow needs? It depends on the relationship between the components of its cash flow.

We have discussed this aspect in detail, and we will not repeat it here.

Another aspect is the quality of cash flow.

This includes cash flow.

The management of an enterprise, such as whether the sales revenue is growing too fast, whether the inventory is outdated or slow, the recoverability of accounts receivable, and whether the cost control is effective or not.

Finally, the business environment of enterprises, such as the future of the industry, the competition pattern in the industry, the life cycle of products, etc.

All these factors will affect the ability of enterprises to generate future cash flow.