ABSTRACT
Financial statement analysis allows the analyst to assess an entity's liquidity and short-term financial position, operating results, and longer-term financial flexibility. The resulting assessment helps provide governments and oversight bodies with early warning of deteriorating financial position. It also provides credit-rating agencies with data on the likelihood of the entity's ability to repay its short- and long-term obligations in a timely manner. Financial statement analysis is accomplished primarily by converting financial statement data elements to ratios and reaching conclusions by assessing the levels and trends of the ratios against a frame of reference. Common ratios include the quick ratio, budgetary cushion, operating margin, and debt service coverage.
