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Note
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Reference no. 198-010-1
Published by: INSEAD
Published in: 1998
Length: 9 pages

Abstract

Financial statements are used by a variety of groups as a first step in evaluating a firm''s management and understanding a company''s business activities. This note explains that absolute figures by themselves tell us little about whether a company is successful or how it has managed its assets and liabilities. The individual numbers must be related to one another to determine a firm''s strengths and weaknesses. Ratio analysis consistently computed over time and across companies will help an analyst ask the right questions and obtain a better understanding of a firm''s past operation and more accurate predictions of future performance.

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Abstract

Financial statements are used by a variety of groups as a first step in evaluating a firm''s management and understanding a company''s business activities. This note explains that absolute figures by themselves tell us little about whether a company is successful or how it has managed its assets and liabilities. The individual numbers must be related to one another to determine a firm''s strengths and weaknesses. Ratio analysis consistently computed over time and across companies will help an analyst ask the right questions and obtain a better understanding of a firm''s past operation and more accurate predictions of future performance.

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