Financial Statement Analysis - A Complete Overview

November 07, 2020 Admin
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Although it is sometimes difficult to persuade a customer to share their financial information, it should be understood that the financial statement analysis is possibly the most important tool, which ScoreMe Solutions provides an opportunity to get a clear picture of the financial position of the customer. This tool provides a one-stop, standalone portal where your sourcing team can browse and get details about a company in the form of a simple, intuitive, insightful report.


It is absolutely essential that financial information is obtained on customers who make significant representations risk in the form of outstanding receivables.

When conducting a financial statement analysis of a potential or existing business client, the purpose is to estimating the company's past performance, look into at the company's future performance additionally. Therefore the performance and financial position of the company, in relation to others within its industry, can be evaluated and future risk and ability to meet payments in a timely fashion can be anticipated.

Financial statement analysis provides an essential tool in the evaluation of credit risk, as it can provide the analyst with valuable information related to the trends and relationships of others within his industry, the quality of a company's earnings, and the strengths and weaknesses that is intrinsic to its business operation. Usually, financial statement analysis is used to analyze whether a unit is stable, solvent, liquid, or profitable that is sufficient to warrant expanding open lines of credit.


The analyst should aware about the following terms while doing financial statement analysis.

  1. Have idea of the business practices associated with the customer's industry.
  2. Good understanding of the purpose, nature and limitations associated with financial information reviewed.
  3. Well-acquainted with the terminology that appears in the financial data provided.
  4. Introduced and informed of the tools available to help clarify the results of the financial statement completely evaluation.

The main three segments of financial statement analysis are:

Balance sheet: containing details of assets and liabilities of the business. Equity is the monetary difference between the value of assets and the value of liabilities. The balance sheet is structured with two columns. Assets, both current and long-term, appear on the left side of the balance sheet and the liabilities, both current and long-term, as well as equity appear on the right side of the balance sheet. The total value of the items on the left (current asset + long term asset) is always equal to the total value Items to the right of the balance sheet (Current Liabilities + Long Term Liabilities + Equity).


The income statement: the income statement breaks down a revenue that a company provides to a bottom line, net income gain or loss, against the expenses involved in its business. The income statement is divided into three parts that help in analyzing business efficiency at three different points. It starts with revenue and the direct cost associated with revenue to identify gross profit. This then goes to operating profit which reduces indirect expenses such as marketing costs, general costs and depreciation. In the end it ends with a net profit that cuts interest and taxes.


Statement of cash flow: that takes aspects of items from both the balance sheet and income Statements and expresses the sources and uses of cash. Three types of statements. This is what proves to be most valuable in assessing the ability of the client to fulfill its commitment.

ScoreMe Solutions provides an innovative and useful financial statement analysis tool that provides insights into the organization which is due to be on-boarded or appraised for credit, customer profiling, vendor relationships, and lead sourcing.

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