4.4. Analyze/Interpret the Processed Data

#cfa-level-1 #reading-22-financial-statement-analysis-intro

Once the data have been processed, the next step—critical to any analysis—is to interpret the output. The answer to a specific financial analysis question is seldom the numerical answer alone. Rather, the answer to the analytical question relies on the analyst’s interpretation of the output and the use of this interpreted output to support a conclusion or recommendation. The answers to the specific analytical questions may themselves achieve the underlying purpose of the analysis, but usually, a conclusion or recommendation is required. For example, an equity analysis may require a buy, hold, or sell decision or a conclusion about the value of a share of stock. In support of the decision, the analysis would cite such information as target value, relative performance, expected future performance given a company’s strategic position, quality of management, and whatever other information was important in reaching the decision.


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