Financial Statements and Ratio Analysis

Today, we focus on financial statements and ratio analysis, which together form

the foundation of financial analysis. Financial statements summarize a firm’s activities, but on their

own they do not tell us whether a firm is performing well or poorly.

Ratio analysis helps convert accounting information into meaningful financial insight. We begin with

a review of the three primary financial statements. The income statement measures a firm’s

performance over a period of time by reporting revenues, expenses, and profit.

The balance sheet reports the firm’s financial position at a single point in time,

showing assets, liabilities, and equity. The statement of cash flows,