ABSTRACT
This chapter provides the basic questions, financial statement analysis, ratio analysis, dupont ratio analysis, limitations of ratios and time series analysis. The interpretation and analysis of financial statements should provide a framework for making informed judgements about a business’s financial performance and financial status. Interpretation of the relative importance of certain items and the meanings of changes in the relationship of one figure to another in the financial statements can bring the operations of the business into sharper focus. Ratios should be treated as indicators, supplying evidence of what may be taking place in a business. A number of red flags may emerge that should help focus the attention. The DuPont ratio analysis provides an effective method for identifying company problems and for using ratios. This method of analysis was developed at the DuPont Corporation and is frequently used by analysts.
