From the course: Corporate Financial Statement Analysis
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Common methods of analysis
From the course: Corporate Financial Statement Analysis
Common methods of analysis
- Now, when it comes to corporate financial statement analysis there are several common methods of analysis. One method relates to what is called common-size financial statements. We prepare common-size financial statements by dividing financial statement numbers by either total sales or total assets. A common-size income statement, for example, is prepared by dividing all the numbers on the income statement by sales. A lot of information can be gleaned from this simple set of calculations. With common-size statements you can compare financial statements of different sizes across time for the same company, and across companies at the same point in time. For example, I'm sure you've heard the term profit margin. What does that term mean, and where does it come from? Well, profit margin means the amount of profit generated in cents for every dollar of sales. It's easily computed by dividing the bottom number from the…
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