The role of financial statement analysis is to use financial reports prepared by companies, combined with other information, to evaluate the past, current, and potential performance and financial position of a company for the purpose of making investment, credit, and other economic decisions.
In evaluating financial reports, analysts typically have a specific economic decision in mind. Examples of these decisions include the following:
- Evaluating an equity investment for inclusion in a portfolio.
- Valuing a security for making an investment recommendation to others.
- Determining the creditworthiness of a company to decide whether to extend a loan to the company and if so, what terms to offer.
- Assigning a debt rating to a company or bond issue.
- Deciding whether to make a venture capital or other private equity investment.
- Evaluating a merger or acquisition candidate.
