Business Valuations: Financial Statement Analysis

once we receive and review the financial statements we try to understand what is driving the company's growth or decline what are those forces and factors we look at the company's margins and how they have changed over time we may look at the overall gross profit margin and as a reminder gross profit margin is calculated as gross profit divided by the company's revenue we also may look at the ebitda which is earnings before interest taxes depreciation and amortization and the ebitda margin similarly calculated as ebitda divided by the company's revenues and the overall net profit margin meaning we look at the net income divided by the company's revenues where compare how the company operates and what the performance is like across time so for the last five years or three years depending on how much financial information we're reviewing and compared to the industry peer group we do the ratio analysis and see again how the company company performs uh over time in comparison to itself as well as well as its industry members we perform the common size analysis meaning for income statement we'll look at each individual line item on the income statement as a percentage of revenues and also for the balance sheet we'll look at the percentage of the total assets based on that we have to determine if any normalization adjustments would be appropriate

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