Understanding financial statements (2): How to analyse and interpret financial Statement (A Common Size Analysis).

Financial statements summarize an organization's financial performance and position.

Analyzing them requires understanding their components (e.g., balance sheet, income statement, cash flow), key elements (assets, liabilities, equity, revenue), and basic ratios.

Common-size analysis (vertical) expresses each line item as a percentage of a key figure like total assets or revenue, revealing financial trends.

In banks, this highlights income sources, cost efficiency, liquidity, and risk exposure.

By comparing these percentages across periods or competitors, one can evaluate financial strengths and weaknesses.

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