Investigating Financial Statements
• Historical Analysis o Spreading the Financial Statements
• Three to five years of data on one page so that trends and relationships can be identified • Calculate common size percentages. For the balance sheet express each asset and liability by total assets • For the income statements, all expense accounts are expressed as a percentage of total revenue. This will help determine if expenses are growing faster than revenues.
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Investigating Financial Statements
• Calculate Key Indicators (Ratios) o Profitability
• Profitability measurements examine the company’s income statement at different levels • Gross Profit = Gross Profit / Revenue • Percentage of each dollar of revenue available to pay operating costs • Net Profit Margin = Net Profit / Revenue • Amount of money made of each $1.00 of revenue
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