What Are the Methods of Financial Statement Analysis?

iStock_000012479981XSmallAnalyzing financial statements is important for companies of all sizes. This process gives companies a look at how they compare to the competition and how the current year compares to previous years. Read this guide for a brief overview of the different methods accountants use to analyze financial statements for businesses.

Trend Analysis

This type of analysis relies on past data and future projections to analyze a company’s current financial statement. A trend analysis or time-series analysis utilizes data from the company’s previous statements as well as expected data to be collected in future statements to analyze information about sales trends as well as the economic status of the company.

Percentage Change Financial Statement Analysis

Find out how this year’s financial statements compare to those of previous years with a percentage change financial statement analysis. This type of analysis requires multiple years of financial statements to compare individual items in a side-by-side format. Percentage change financial statement analysis is useful for determining how sales in one month compare to sales from that month in previous years.

Common Size Financial Statement Analysis

Use this type of analysis to compare your company to another company or compare different time periods of sales from your own company. Common size financial statement analysis uses a common base to translate all items to percentages, making it easier to compare individual items. This analysis method can compare various elements, including overall revenue.

Industry Analysis

Similar to common size financial statement analysis, this type of analysis is useful for comparing one company to others in the same industry. This method, commonly referred to as benchmarking, uses financial ratios from multiple companies to compare sales and other important information. Companies can determine where they rank among the competition using industry analysis.

Kalil & Associates can help you learn more about analyzing financial statements to improve and strengthen your business. Contact us at (520) 433-9121 to see how our Tucson accountants can help your business with bookkeeping and other services.