To analyze a company’s financial reports we can use the following tools:

(1) Vertical analysis.
These include the income statement (each item is expressed as a percentage of sales) and the balance sheet (each item is expressed as a percentage of total assets).

(2) horizontal analysis.
This includes a profit and loss statement with trend representation and a profit and loss statement/balance sheet with percentage changes

(3) Analysis of the causes of the change.
We can understand why net profit changed from one period to the next by separately identifying the individual effects of a change in revenue, a change in margins, a change in a particular expense account, etc.

(4) Ratio analysis.
This tells us how quickly a company sells its inventory, collects money from customers and pays suppliers. We can analyze the company's profit margins, return on investment, short-term liquidity, long-term solvency and efficiency.

(5) DuPont analysis.
We can break down ROA and ROE into their components to find out why (a) the company's performance is improving or deteriorating and/or (b) why the company is performing better/worse than its competitors.

(6) Quality of yields.
We can assess the likelihood that the company has manipulated its financial reports to overstate revenue and/or profits.
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