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Abstract

This chapter is excerpted from 'The Story Underlying the Numbers: A Simple Approach to Comprehensive Financial Statements Analysis'. Very often it is observed that when faced with financial statements of a firm, students and even practitioners are at a loss as to where to begin the analysis. Most simply compute every ratio they know and interpret them in a standalone manner. They are unable to thread them together to spin a meaningful story that can completely or at least substantially explain what might be probably happening in the firm. Unless the individual studying the financial statements - whether an investor, management personnel, third-party analyst, or any other party of interest - is able to identify underlying issues and come up with probable causes, decision making with regard to investment or pulling out, or with regard to resolving the problem, will remain flawed. This book is aimed at students and working executives who have a rudimentary prior understanding of the three primary financial statements - the balance sheet, the income statement, and the cash flow statement - as well as familiarity with the very basic financial ratios. The book uses a logical, top-down approach to unraveling the underlying story of the firm. If you are an executive at a firm in a decision-making capacity, this book is for you. It is a myth that only executives in the finance function need to understand financial statements. Every decision within a firm has implications for the financial statements and the need for such knowledge increases as one goes up the corporate ladder. The book is intended to be free flowing, with minimum jargon so as to be understood and appreciated especially by nonfinance executives and students of business and management.

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Abstract

This chapter is excerpted from 'The Story Underlying the Numbers: A Simple Approach to Comprehensive Financial Statements Analysis'. Very often it is observed that when faced with financial statements of a firm, students and even practitioners are at a loss as to where to begin the analysis. Most simply compute every ratio they know and interpret them in a standalone manner. They are unable to thread them together to spin a meaningful story that can completely or at least substantially explain what might be probably happening in the firm. Unless the individual studying the financial statements - whether an investor, management personnel, third-party analyst, or any other party of interest - is able to identify underlying issues and come up with probable causes, decision making with regard to investment or pulling out, or with regard to resolving the problem, will remain flawed. This book is aimed at students and working executives who have a rudimentary prior understanding of the three primary financial statements - the balance sheet, the income statement, and the cash flow statement - as well as familiarity with the very basic financial ratios. The book uses a logical, top-down approach to unraveling the underlying story of the firm. If you are an executive at a firm in a decision-making capacity, this book is for you. It is a myth that only executives in the finance function need to understand financial statements. Every decision within a firm has implications for the financial statements and the need for such knowledge increases as one goes up the corporate ladder. The book is intended to be free flowing, with minimum jargon so as to be understood and appreciated especially by nonfinance executives and students of business and management.

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