From the course: Corporate Financial Statement Analysis
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What's next?
- Let's summarize what we've learned about financial statement analysis. First, there's a four-step process. - It starts with return on equity and the DuPont framework. With the DuPont framework we look at that return on equity and decompose it into profitability, efficiency, and leverage, those three dimensions because we know that all three of those affect a company's return on equity. - To then find out a little bit more detail about profitability, efficiency, and leverage, we can then use common size financial statements. - In my opinion, the common size financial statements are the single-most efficient tool at getting insights into a business. - Look at the common size balance sheet, the common size income statement. From there, we've identified efficiency or leverage or profitability problems we can then drill down with some specific ratios, with profitability ratios, efficiency ratios, and leverage ratios. - Finally, all of this is to prepare us for step four. We need to talk…
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