Thesis: Analysis of Financial Statements

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Literature Review

Business managers, investors and others have used a variety of techniques to help them appraise a project, evaluate the standing of a company, measure and monitor stock performance for a number of years. The methods and techniques employed use the given data, and convert it into meaningful information through analysis, interpretation and projection. This makes it possible to make comparisons with similar data of other companies in the same industry or comparisons within the same company for different years. Some of the most popular contemporary techniques are horizontal and vertical analysis, financial statement analysis according to different types of industry, a basic review of subjective information and trend analysis and financial ratio analysis (Gibson 1998).

The information that has been collected from the analysis using the aforementioned techniques is then integrated and combined to arrive at a conclusion regarding the financial standing of a business either in relation to competitors or to itself in the previous years.

The analysis of financial statements requires sound judgment based on reliable, timely and authentic information. The judgment process is crucial to the future of the company in question. If there is a shift in the trends and the judgment process is unable to spot that trend, the company will suffer financially or otherwise. To aid this process, the tools mentioned above have been invented by people so that managers and individual business owners can make sound and logical decisions that are correct in essence and can help the company prosper (Gibson 1998).

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