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A crucial element of running a successful enterprise is communication. This includes internal communications, communications with outside entities (i.e. banks, auditors, etc.), and communication to the shareholders – or investors – and consumers. Developing and releasing an accurate financial statement is a necessary step to keep open communication in good faith. Financial statements can show information about the company, its historical performance, the current state of the business, as well as future prospects. Financial statement analysis is use as a tool to see the current state of the entity, a tracker on how productive management is, an early warning to investors, a predication tool for the future, and a measure of accountability. A proper analysis of financial statements will use four specific tools – cause-of-change analysis, common-size statements, trend statements, and financial ratios – to examine potential profitability of the business’ ventures and their credit risk (Revsine, Lawrence, et al., 2021).
Financial statement analysis is an important area of study for anyone wanting to go into the business or finance realms of industry because they would need to know exactly how to “read” and interpret what is put out from a company. Many financial statements are length and must be properly analyzed by the partner side and consumer/investor side to make the best decision with regards to investing and cooperation. Also, as stated by M.R. Kumara Swany, proper financial statement analysis should be (at least for the Christian business person or investor) base on ethical values. The world is rampant with deception and corruption, so being able to properly analyze a financial state – to include being able to recognize discrepancies – is crucial (2012). Proverbs 13:11 teaches us that, “Dishonest money dwindles away…” This is one of many scriptural references that guides Christ followers to conduct business in an honest and moral way.
Entwistle makes a very applicable distinction where he compared financial accounting to financial statement analysis. In financial accounting, there are plenty of strict and rigid rules and guidelines. Yet, for financial statement analysis, there is no standard or formality (2015). This lends even further to the point that financial statement analysis is something needs to be studied and learned by individuals wanting to invest or be in a business career. Proverbs 21:5 teaches us that, “The plans of the diligent lead to profit as surely as haste leads to poverty.” Proper planning requires proper knowledge. Learning to correctly and efficiently analyze financial statements will enable an investor to make proper plans and moral decisions.
Entwistle, G. (2015). Reflections on Teaching Financial Statement Analysis. Accounting Education, 24(6), 555–558. https://doi.org/10.1080/09639284.2015.1075314
New International Version. (2011). BibleGateway.com. http://www.biblegateway.com/versions/New-International-Version-NIV-Bible/
Revsine, L., Collins, D. W., Bruce, W. B., Mittelstaedt, H. F., & Soffer, L. C. (2021). Financial Reporting & Analysis (8th ed.). McGraw-Hill Education.
Swamy, M.R. Kumara. “Ethic–based management vs corporate misgovernance–new approach to financial statement analysis.” Journal of Financial Management & Analysis 25.2 (2012): 29+. Business Insights: Global.
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