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A framework for business analysis and valuation using financial statements - From financial statements to business analysis

6 important questions on A framework for business analysis and valuation using financial statements - From financial statements to business analysis

Effective financial statement analysis is usefull because

It attempts to get at managers inside information from public financial statement data

Business intermediaries use the financial statements ot accomplish the following 4 steps:

Business strategy analysis
accounting analysis
financial analysis
prospective analysis

Describe the purpose of the business strategy analysis

It is to identify key profit drivers and business risks and to assess the companys profit potential at a qualitatitive level. It analyzes the industry and the firms sustainable competitive advantage

Descibe the purpose of accounting analysis

It is to evaluate the degree to which a firms accounting captures the underlying business reality. By identifying places where there is accounting flexibility, and by evaluating the appropriatness of the firms accounting policies and estimates, analysts can asses the degree of disortion in a firms accounting numbers

Describe the goal of financial analysis

It is to use the financial data to evaluate the current and past performance of a firm and to asses its sustainabillity. It should be systematic and efficient and it should be able to explore issues

Describe the focus of the prospective analysis

It focusses on forecasting a firms future, which is the final step in business analysis. Two techniques are used: financial statement forecasting and valutaion.