Financial ratio analysis is an analytical tool used to assess financial performance based on financial comparison data in a period. The financial data used includes three company financial statements, namely profit and loss financial statements, cash flow statements, and balance sheets. This financial report is used to provide information about the financial position and performance of the company to make decisions. Additionally, you can hire Online bookkeeper services if you need the best bookkeeping experts to help your company manage its financial reports homepage.
Before discussing the procedure or how to conduct an analysis, it is a good idea to understand the objectives of financial statement analysis. If you want to conduct financial ratio analysis, there are several steps that you must take. Some of the steps for carrying out the analysis are as follows:
Select & Understand Company Background
The first thing you have to do to do a financial ratio analysis is to have a company. If you have chosen the company you want to analyze, then understand the company’s background. At a minimum, you have an understanding of the company’s business fields and the accounting policies applied by the company.
Pay Attention to Influential Factors
The second step is to consider the factors or conditions that affect the company. Factors or conditions that you need to consider and understand are related to information on trends and industrial progress. Examples include per capita income, interest rates, inflation and tax rates, interest rates, management, and others. This is because external factors also influence the financial condition of the company in the current year. So to analyze the company’s finances, you also have to pay attention to the conditions that occur.
Review of Financial Statements
To analyze financial ratios, make sure that the company’s financial statements are selected clearly. It means that the financial statements describe the correct financial information. In addition, make sure that the financial statements are made in accordance with the applicable Financial Accounting Standards. You can also do a simple financial report review first. This will make it easier for you to do the next step.