Analyze Investments

4. Statement Of Changes In Owners’ Equity
The statement of changes in owners’ equity or financial
position gives more details concerning the change in ownership
accounts, or net worth, as recorded by the beginning
and ending balance sheets. Getting a closer look at the
funds flow statement allows you to make a more detailed
analysis. For example, you can determine whether debt or a
new equity issue financed company growth.
From Data Collection To Ratio Analysis
The statements discussed provide much useful information.
However, the collection of data is just a starting point.
Once reliable information is assembled, an investor can conduct
ratio analysis on the firm and then compare the information
to data of firms within the industry.
Ratio usefulness lies in the ability to turn a series of numbers
into a powerful display highlighting the elements that
affect operating performance. While there are many ways to
compare numbers, ratio analysis is accomplished simply by
dividing one number into the other.
Ratios
Financial ratios are designed to exhibit relationships among
financial statement accounts, putting numbers into perspective.
Unfortunately, it’s not always clear whether higher or
lower values for any given ratio are desirable. When unsure,
look at the trends for the industry. The more enlightened you
are, the more success you will have as an investor.
Ratios have a number of advantages:
• They clarify the relationship between numbers that are
difficult to see and comprehend by themselves.
• Ratios focus on trends that may be impossible to spot
in a column of numbers.
• Ratios make numerical reporting easier to follow and
more interesting, especially when comparing firms within
an industry.
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