scope of financial statement analysis(10mks)

Financial statement analysis is a process of analyzing a company’s financial statements and

reports to assess its financial health, performance, and prospects. It includes analyzing
financial data such as income statements, balance sheets, and cash flow statements to help
make decisions about the company’s future.

Scope of financial statement analysis includes:

1. Financial Ratios: Analyzing financial ratios such as current ratio, quick ratio, debt-to-
equity ratio, and other key ratios provides an understanding of a company’s financial health,
liquidity, solvency, and profitability.

2. Financial Stability: Analyzing the financial stability of a company can provide insights into
its ability to meet its financial obligations.

3. Cash Flow Analysis: Analyzing cash flow can help understand a company’s ability to
generate and maintain positive cash flow.

4. Profitability Analysis: Analyzing profitability can provide insights into a company’s ability
to generate profits and grow.

5. Operating Performance: Analyzing a company’s operating performance can provide

insights into how efficient the company is at generating income from its operations.
6. Investment Analysis: Analyzing the investments of a company can provide insights into
the company’s risk-reward profile, and help identify potential investment opportunities.

7. Trend Analysis: Analyzing trends in a company’s financial statements and reports can
provide insights into the company’s performance over time.

8. Comparative Analysis: Comparing a company’s financial statements and reports to those

of similar companies can provide insights into how the company is performing relative to its
peers.

9. Financial Forecasting: Forecasting a company’s future performance can provide insights

into how the company will perform in the future and can help inform decisions about how to
best position the company for success.

10. Valuation: Valuing a company’s assets and liabilities can provide insights into the
company’s intrinsic value and can help inform decisions about whether or not to invest in the
company.