ABSTRACT
A company attempting to maximize profits, maintain appropriate levels of liquidity and solvency, and prudently manage risks, must first understand the state and trend of its financial position. In this chapter we consider the process of standard financial reporting, analyze the structure and use of the three main financial statements (balance sheet, income statement, and statement of cash flows), and discuss how financial statement ratio analysis can be used to decipher the financial strengths and weaknesses of a firm. We will conclude by considering how financial statements are used in the decision-making process.
