Accounting › Section O · Cash flows and statement analysis › Topic O.7
Strengths and limits of statement analysis
Ratios and common-size statements are powerful, but they are only as good as the numbers behind them. Knowing where those numbers come from, what they leave out and how they can be flattered is what separates a careful analyst from a calculator.
In this topic
- A powerful tool with blind spots
- What statement analysis does well
- Historical cost, estimates and inflation
- Different accounting methods
- Timing, one-off items and window dressing
- What the statements leave out
- Reporting quality and non-GAAP measures
- Warning signs and the audit report
- Worked example: FIFO and LIFO side by side
- Worked example: reading the red flags
- Common mistakes to avoid
- Key takeaways
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