Decoding the Numbers: How Financial Statement Analysis Can Boost Your Returns

Financial statements are a key tool for assessing a company’s financial health. They reflect the company’s performance over a certain period and provide important information for making managerial decisions. So, the main components of financial statements include: the balance sheet, the income statement, and the cash flow statement. A critical part of evaluating a company’s financial health and performance is also analyzing key performance indicators:

1. ROE (Return on Equity) — shows the effectiveness of using the company’s equity to generate profit.
2. ROA (Return on Assets) — reflects the efficiency of utilizing all of the company’s assets to generate profit.
3. Profit margin — indicates the difference between the company’s revenue and expenses, expressed as a percentage of revenue.
4. Inventory turnover and accounts receivable turnover.
5. Long-term and short-term liquidity ratios. Interpreting financial statements and analyzing data are essential tools for successful investing. By following these practical tips, you can make informed investment decisions and manage risks in your portfolio.