Learn Financial Analysis

Financial ratios can be deceptive, they only show relationship between numbers but don't say the cause for those numbers. The essence of financial analysis is to look at numbers and ask questions. One of the major problem with financial ratios is that they are so many, it becomes difficult to analyse them. To make this task easy we will be following a step by step process of how to analyse financial statements.

  1. Get the financial statements :- Learning the three most important financial statements (Balance sheet, Income Statement and cash flow statement). And understanding the information that these statements would show and what information they won't show.

  2. Perform DUPONT Analysis :- Using DuPont Framework to analyse the return on equity and then breaking down ROE into profitability , efficiency and leverage components.

  3. Make common size balance sheet :- Create Common-size balance sheet and income statement to understand the performance of the company over a period of time.

  4. Analyse various financial ratios :- Looking at various profitability , efficiency and leverage ratios to understand companies performance in these areas

  5. Ask questions :- Coming up with insights and questions