What is a financial accounting analysis?

Financial accounting analysis includes the use of the company's financial statements to evaluate its liquidity, solvency and profitability. The practice of financial accounting mainly concerns the transformation of the company's financial transactions into several financial statements that can be used to evaluate its financial situation. The three main statements used to make financial accounting analysis are balance sheet, profit and loss statement and cash flow statement. Liquidity measures the ability of society to pay its short -term obligations. Short -term obligations are defined as any commitment for which they are expected to be repaid within one year. Several conditions known as liquidity ratios are used to measure the ability of the company to meet its current obligations.

The most common liquidity ratios include current ratio, working capital, inventopometer of turnover and receivables ratio. The current ratio divides the current assets according to current obligations that can be obtained from the balance sheet of society. In a financial analysisAccounting represents the current ratio of the cash value of the current assets, which the Company compared to the value of its current obligations. The ratio of healthy current would have to be more than 1.0 and could be compared with the history of the previous year of society and the average industry.

When measuring solvency of the company, the company's financial accounting calculations reveal the ability of the company to repay their debt and related interest. In the analysis of financial accounting, solvency can be measured according to the debt ratio to the total ratio, the ratio of financial debts coverage, the ratio of time interest obtained and free cash flow. Solvency ratios use information from the balance sheet, incoming to report OME and statement of cash flows.

As with a consumer credit rating that takes into account the total debt to income, it measures the debt ratio to measure the share of total SPO obligationsThe duty of the overall assets. The ratio of cash debt coverage shows how many times the cash flow from the operations could cover the average total obligations. The cash flow of operations includes cash obtained from the sale of goods and services versus financing or investing. The more money flow from operations can cover average total obligations, the better.

profitability in financial accounting analysis is a measure of how much income the company carries out of its operations, assets and investment activities. Many of the conditions used in profitability analysis use information from the statement and loss and balance sheet. In addition to measurement of profit at the share and return on your own capital, profitability examines the Grosazba of the SS profit, the ratio of the turnover, the payment ratio and the ratio of the price to revenues. The gross profit ratio suggests how much net sales contribute to the total profit of the company and the return on the activation indicates how much net income comes from the average total assets.

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