An essential guide to the three key financial statements and how they help in business valuation and decision making.
Learn MoreFinancial analysis is the process of evaluating a company's financial statements to make informed decisions regarding investment, business valuation, and financial planning. The analysis focuses on understanding the performance and future potential of the business based on its financial health.
The Income Statement, also known as the Profit and Loss Statement, shows a company’s revenue and expenses during a specific period. It is used to assess a company's profitability, operating efficiency, and cost management.
The Balance Sheet provides a snapshot of a company's financial position at a specific point in time, detailing assets, liabilities, and shareholders' equity. It is essential for understanding a company’s net worth and capital structure.
The Cash Flow Statement tracks the flow of cash in and out of a business, broken down into operating, investing, and financing activities. It is crucial for assessing a company's liquidity and ability to meet its financial obligations.
Financial models, often built using historical data from these statements, are used to value businesses. Discounted cash flow (DCF) models rely heavily on the cash flow statement and projected income statement data to estimate a company’s present value.
By analyzing the Income Statement, investors and analysts can gauge the company’s profitability and performance over time, which is essential for evaluating the sustainability of earnings.
The Balance Sheet is fundamental for evaluating a company's capital structure, debt levels, and ability to cover short- and long-term liabilities. It gives insight into the company’s financial stability and potential risk.
The Cash Flow Statement highlights the liquidity of a business, showing whether it has enough cash to fund operations, invest in growth, and return capital to shareholders.
Learn how to apply financial analysis and modeling techniques to understand business performance and make informed investment decisions.
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