Financial Statement Analysis for Investors
MBA640: Accounting for Decision Making
December 11, 2012
Table of Contents:
Section I: Introduction (Page 3)
Section II: Literature Review (Page 4)
Section III: Methodology and Data Collection (Page 5)
Section IV: Results (Page 6)
Income Statement Analysis (Page 7)
Balance Sheet Analysis (Page 11)
Statement of Cash flow Analysis (Page 14)
Section V: Conclusion (Page 16)
Recommendation for Future Study (Page 16)
Section VI: Work Cited (Page 18)
The main purpose of the research paper is to support why financial statements are an important tool when analyzing a company as a potential investor or investment analyst. There is a lot of useful data in financial statements that can help provide insight into future success or failure for a business. Throughout research, there will be substantial support on how important it is for potential investors to use the data found in financial statements and how particular formulas should be used to help aid in investment analysis. Many investors fail to look at some of the most crucial pieces of data when basing their decision or they often fail to apply the data found in financial statements to future results. The research will show how data found in financial statements can be applied to predict how a company may fair going forward. The research was conducted on the balance sheet, income statement and statement of cash flow. Each has crucial information that can help determine the financial condition of a company and can tell in a different way, the suitability of a company for investment purposes.
If an investor is planning to invest in a particular company, it is crucial for the investor to use the information found in the financial statements in order to make an educated investment decision. An investor can't make an informed decision on suitability of an investment without having done analysis on the income statement, balance sheet, and statement of cash flow. Section II:
The research brought about a lot of interesting literature that helped prove the importance of financial statement analysis. “Fundamental Accounting Principles”, the accounting textbook written by John J. Wild, Ken W. Shaw and Barbara Chiappetta, helped provide the basis of the topic, along with formulas that are vital to doing financial statement analysis for investment purposes. Chapter 17 of the text, titled Analysis of Financial Statements, covers the purpose of analysis, which statements provide specific information, useful techniques to use for analysis, and several ratios that are commonly used for analysis. Articles found from online websites such as the one written by Joshua Kennon, titled “Analyzing an Income Statement” helped outline what to look for when doing investment analysis on income statements. Kennon’s article gave a lot of background on what information can be found and how the information can be used for investment analysis. Kennon also wrote an article for balance sheet analysis, titled “Analyzing a Balance Sheet.” This time, he got into the specifics of how investors and analysts are able to use balance sheets to help in their analysis of a company’s suitability for investment. Ben McClure, an author for Investopedia.com, wrote a detailed analysis of the fundamental analysis of the cash flow statement and how it can be used by investors. This article notes the importance of the cash flow statement and how investors should pull information from the statement to apply ratios that are vital to analyzing a company’s performance and stability.
Methodology and Data Collection
The research for the topic started with a discussion with Eric Sontag, a Chartered Financial Analyst (CFA) at Sontag Advisory LLC. When asked what Eric thought would be a good way to relate accounting...
Cited: 1. Kennon, Joshua. "Income Statement Analysis." About.com Investing for Beginners. N.p., n.d. .
2. Wild, John J., Kermit D. Larson, and Barbara Chiappetta. Fundamental Accounting Principles: 20th Edition. New York: McGraw-Hill/Irwin, 2011. Print.
3. Graham, Benjamin, and Charles McGolrick. The Interpretation of Financial Statements. New York: Harper & Row, 1975. Print.
4. Kennon, Joshua. " Analyzing a Balance Sheet." About.com Investing for Beginners. N.p., n.d. Web. 24 Nov. 2012. .
5. Krantz, Matt. "What Should Investors Focus on in Financial Statements?" USATODAY.COM. USA Today, 12 Jan. 2012. Web. 23 Oct. 2012. .
6. McClure, Ben. "Fundamental Analysis: The Cash Flow Statement." Educating the World about Finance. Investopedia, n.d. Web. 26 Nov. 2012. .
7. Wallick, S. H. "How to Analyze a Company 's Cash Flow Statement." Yahoo!, 20 May 2009. Web. 26 Nov. 2012. .
8. Janssen, Cory, Chad Langager, and Casey Murphy. "Technical Analysis: Moving Averages."Investopedia – Educating the World about Finance. Investopedia, n.d. Web. 8 Dec. 2012.
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