Professional Documents
Culture Documents
Balance Sheet
Financial statement analysis includes financial ratios. Here are three financial ratios that are
based solely on current asset and current liability amounts appearing on a company's balance
sheet:
Four financial ratios relate balance sheet amounts for Accounts Receivable and Inventory to
income statement amounts. To illustrate these financial ratios we will use the following income
statement information:
To learn more about the income statement, go to:
The remainder of our explanation of financial ratios and financial statement analysis will use
information from the following income statement:
To learn more about the income statement, go to:
We will use the following cash flow statement for Example Corporation to illustrate a limited
financial statement analysis:
The cash flow from operating activities section of the statement of cash flows is also used by
some analysts to assess the quality of a company's earnings. For a company's earnings to be of
"quality" the amount of cash flow from operating activities must be consistently greater than the
company's net income. The reason is that under accrual accounting, various estimates and
assumptions are made regarding both revenues and expenses. When it comes to cash, however,
the money is either in the bank or it isn't.