How to Analyze Financial Ratios and Accounting Statements
In today's world, accounting is one of the most important aspects of running a business. It allows people to understand their financial situation and helps them plan accordingly. This video shows you how to analyze accounting statements and financial ratios.
Financial ratios and accounting statements give us insights into how companies perform financially. They also tell us whether the management team successfully manages the organization. The balance sheet shows a business's assets and liabilities, such as equipment, cash, and creditors. The income statement indicates a company's sales, expenses, income from operations, and profit or loss. This report also tells us how much cash the company has left after paying bills and investing in new projects. The cash flow statement shows a company's changes in currency and investments during a period. It tells us how much money a company spends and receives during a quarter.
There are three main financial ratios: Return on assets (ROA), return on equity (ROE), and net profit margin (NPM). Both investors and companies use these ratios to evaluate their performance. They provide information regarding the firm's profitability and thus determine its ability to repay debts and satisfy shareholders.
