Introduction to Financial Statement Analysis

Learning Objectives5chapterIntroduction to FinancialStatement Analysis1 Explain the purposeof Financial the rela-tionships between finan-cial Statement numbersand use ratios in analyz-ing and describing a com-pany s common-size fi-nancial statements to per-form comparison offinancial statements acrossyears and between theDuPont framework andhow return on equity canbe decomposed into itsprofitability, efficiency,and leverage cash flow infor-mation to evaluate cashflow the limita-tions of Financial studying this chapter, youshould be able to: 2003 Getty 11/13/03 7:39 PM Page 202In 1987, IBMwas the most valuable company in theworld, worth an estimated $ billion. By the endof 1992, IBM had an estimated value of $ decline in value can be traced to a strategic errormade by IBM in the early 1980s.

and implemented, and the accounting system captures the results of these deci-sions so that a new set of financial statements can be prepared. The process then repeats itself. For external users of financial statements, such as investors and creditors, financial statement analysis plays the same role in the decision-making process.

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