Financial Report

Financial reports are an important basis for a company's operating results and financial status, and have great reference value for investors, creditors, managers and other stakeholders. However, the numbers and ratios on financial reports sometimes make people confused and unable to start. How to effectively analyze and interpret financial reports? This article will introduce the basic structure and content of financial reports, as well as some commonly used financial report analysis methods and tools, hoping to help you quickly grasp the company's financial performance and risks.

Basic structure of financial reporting

Financial reports are financial information disclosed to the outside world by a company on a regular basis (usually quarterly or annually), and mainly include the following four parts:

Balance Sheet: Reflects the status of a company's assets, liabilities, and equity on a specific date (usually the end of a quarter or the year), that is, the company's financial position or financial structure.

Income Statement: reflects the company's revenue, costs, expenses, taxes, net profit and other items during a specific period (usually a quarter or a year), that is, the company's operating results or profitability.

Cash Flow Statement: reflects the source and use of the company's cash inflows and outflows during a specific period (usually a quarter or a year), that is, the company's cash flow situation or cash management capabilities.

Statement of Changes in Equity: reflects the changes in the company's equity, capital reserves, retained earnings, other equity and other items during a specific period (usually a quarter or a year), that is, the company's shareholders' equity Changes.

In addition to these four parts, the financial report will also be accompanied by notes (Notes) explaining how the numbers in the financial report are calculated and measured, as well as other important matters that may affect the judgment of users of financial information. For example, the notes will explain what accounting policies and estimation methods the company uses, whether there have been major transactions or events, whether there have been lawsuits or disputes, etc.

The purpose and method of financial report analysis

The purpose of financial report analysis is to extract useful information from financial reports and evaluate and judge it to achieve different decision-making goals. For example, investors may want to understand the company's value and future development prospects from financial report analysis, creditors may want to understand the company's solvency and credit risks from financial report analysis, and managers may want to understand the company's solvency and credit risks from financial report analysis. operational efficiency and competitive advantage, etc.

To conduct effective financial report analysis, we can use the following methods:

Ratio Analysis: Use different ratios to measure various financial indicators of the company, such as return on assets, gross profit margin, current ratio, debt ratio, etc. Ratio analysis can help us quickly understand the company's performance and level in different aspects (such as profitability, solvency, growth ability, etc.).

Horizontal Analysis: Compare the financial figures of the same company at different points in time (such as different years or quarters) and observe changes and trends. Horizontal analysis helps us understand how a company has grown or declined over a period of time.

Vertical Analysis: Divide each financial number of the same company at the same point in time (such as a certain year or a certain quarter) by its total amount (such as total assets, total revenue, etc.) to obtain the results of each number. Percentage of the total. Vertical analysis can help us understand the relative relationship between a company's various numbers at a certain point in time.

Comparative Analysis: Compare the financial figures of different companies at the same point in time or at different points in time, and observe their differences and competitive advantages and disadvantages. Comparative analysis can help us understand the gap between a company and its competitors or industry averages.