Financial Statement and Ratio Analysis

Financial Statement and Ratio Analysis
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Financial Statement and Ratio Analysis
Financial statement scrutiny is the process of evaluating and reviewing the financial statement of a company with an objective of gaining an understanding of the status of financial health of the company. Additionally, financial statement analysis helps managers in decision-making processing because they will have a rough idea of the financial health of the company. (Wahlen, Baginski & Bradshaw, 2014). When using financial statement analysis, there could be vertical and horizontal analysis. Different income ratios can be used. These income ratios include profitability ratios which involve two methods of analysis. These methods include net profit margin and return on Equity. The Net Profit Ratio margin which is calculated by dividing the net income by the net sales. The amount that will be gotten is the total amount of profits that an organization has earned after paying taxes, and all the expenses have been deducted from sales (Ball, Li, & Shivakumar, 2015). Other profitability ratios used in income statement analysis include return on assets and return on equity as discussed earlier. Return on assets is assessed through getting the comparison between assets to determine the effectiveness of a company in deploying assets to generate sales to make profits (van Caneghem, 2016). This means that the more assets a company has, the more the chances…