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financial statement analysis Framework
#fra-introduction

he financial statement analysis framework provides steps that can be followed in any financial statement analysis project, including the following:

  • Articulate the purpose and context of the analysis.

    What is the purpose of the analysis? Evaluating an equity or debt investment? Or issuing a credit rating?

    The context needs to be defined clearly too: Who is the intended audience? What is the nature and content of the final report? What is the time frame? What is the budget?

  • Collect input data.

    Gather a company's financial data from financial statements and other sources described in Subject c (other financial information sources). Also gather information on the economy and industry to understand the environment in which the company operates.

  • Process data.

    Compute ratios or growth rates, prepare common-size financial statements, create charts, perform statistical analyses, make adjustments to financial statements, etc.

  • Analyze / interpret the processed data.

    Interpret the output to support a conclusion (e.g., a buy decision).

  • Develop and communicate conclusions and recommendations.

    Communicate the conclusion or recommendation in an appropriate format.

  • Follow up.

    Periodic review is required to determine if the original conclusions and recommendations are still valid.

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