Comparative Analysis and Ratio Analysis of Financial Statements

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Comparative and Ratio Analysis Introduction At the end of the financial or business year of all companies, the company management prepares and publishes their financial statements and makes them available for their shareholders and other stakeholders. This is done so that the shareholders and all other stakeholders are aware of the financial condition of the company and how it is operating in terms of financial and operational success. All these people require being aware of all this information because it is the primary source of data that helps a stakeholder understand the existing and expected future condition of the company in terms of finances. When this information is obtained, the stakeholders are able to judge this information to determine any decisions that are to be made in order to improve and grow their investments in the company (Mustakallio, Autio, & Zahra, 2002). If a company is not in a sound position, which is witnessed through the operations of the company elaborated in the financial statements published by the company, the investors show reluctance to invest their money in such a company on which return is very low and risk of losing the money is high. Comparative Analysis However, to an average shareholder, it is near to impossible to understand the financial statements of a company only by looking at the financial figures to arrive at a decision to invest or take money out of the company. For such purposes, an analysis is required to understand and
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