ABSTRACT

This chapter examines the techniques, such as ratio analysis, that are used to quantify a company's financial health and performance. It considers the two fundamental goals of a business enterprise. Because of the inverse relationship between financial reward and risk, there is a tension between seeking profit on the one hand and ensuring the survival of the company on the other. The accounting policies, a company adopts in preparing its financial statements, determine the results they record. Changes in accounting policies, year-ends or the length of periods over which fixed assets are depreciated should be noted. Financial analysts have developed a battery of numerous ratios that can be calculated from accounts. Data on profit margins enable an observer to see how well a company has succeeded in generating revenue and controlling costs. A reasonable understanding of the structure and contents of company accounts and how to interpret them is an essential skill for competitive intelligence (CI) analysts.