All monetary statements are basically historically historical documents. They tell what has occurred in the course of a certain period of time. Still most users of economic statements are concerned about what will occur in the future. Stockholders are concerned with future earnings and dividends. Creditors are concerned with the company's future capability to repay its debts. Managers are concerned with the company's ability to finance future expansion. In spite of the truth that economic statements are historical documents, they can nonetheless present beneficial info bearing on all of these concerns.
Financial statement analysis entails careful selection of information from economic statements for the primary purpose of forecasting the monetary health of the company. This is accomplished by examining trends in key economic data, comparing economic information across providers, and analyzing key economic ratios.
Managers are also widely concerned with the financial ratios. Initial the ratios provide indicators of how nicely the provider and its small business units are performing. Some of these ratios would ordinarily be employed in a balanced scorecard method. The specific ratios selected depend on the company's method. For example a provider that wants to emphasize responsiveness to clients may closely monitor the inventory turnover ratio. Considering that managers should report to shareholders and might wish to raise funds from external sources, managers need to pay attention to the financial ratios utilised by external inventories to evaluate the company's investment prospective and creditworthiness.
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