By now, we all know that an income statement portrays the year-to-date performance of a business. However, the bottom-line figure in the income statement (that is, net income) is influenced by what is reported in the statement under the categories of revenues and expenses. Therefore, readers of the income statement have to carefully examine the income statement in evaluating the future profitability of a business.
What is the concept of sustainable income? Please describe it in your own words. Can you give an example of what this number may look like by using the income statement of a real-life company?
Here are different tools for analyzing the financial statements of a company, such as horizontal analysis, vertical analysis, ratios for measuring financial health and profitability, and so forth. Before we begin using these tools, however, it is important to know the purpose of each tool.
Why do we need different tools for analyzing the financial statements? Don't the numbers in the financial statements speak for themselves?