How do you analyze a Balance Sheet and Income Statement?

Question

Accepted Answer

Analyzing balance sheets and income statements involves assessing financial health, performance, and trends over time.

Review key ratios: liquidity ratios (e.g., current ratio) indicate short-term financial health.
Examine profitability: net profit margin shows how much profit is generated from revenue.
Analyze trends: compare current statements with previous periods to identify growth or decline.
Assess asset management: inventory turnover ratio indicates how efficiently inventory is managed.
Evaluate debt levels: debt-to-equity ratio helps understand financial leverage and risk.

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