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Hi and welcome to Part Nine:
Financial Statement Analysis
in this HS Talks lecture series
on Analyzing Financial Statements.
My name is David Bond.
Over the course of
the first eight parts,
we looked at the various steps
involved in preparing
And now we turn our attention
to how to use these financial statements
to analyze the health of an entity.
A caveat before we begin.
Financial statement analysis
is only one part of the toolkit
that can be used to assess a company.
There is a range of other information
in the annual report
including the auditor's report
and the management discussion
and analysis section.
In addition, annual reports
are only one source of information
about an entity,
especially if it is a listed company.
Listed companies are required to provide
regular updates to the market,
let alone other voluntary information
they may disclose.
There are also analyst and news reports,
as well as reports in data
about general macroeconomic conditions.
But in saying all of that,
an analysis of the financial statements
is still worthwhile,
and we'll look at
some of the main methods used.
To begin, all financial analysis
requires a point of comparison.
Working out that a company
has a 10% profit margin
doesn't really tell us anything
We probably would like to know
how that compares
to the profit margin from last year
to see whether they are improving
or getting worse.
We probably would also like to know
how they compare to other companies,
especially those in their industry.
This could be done by comparing them
to individual competitors
or industry averages.
There are three main types
of financial statement analysis
that we'll cover here being horizontal,
vertical, and ratio.
We'll start with horizontal.