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Chapter 6. Statement Analysis

Chapters 1 through 4 discussed the creation of income statements and balance sheets, and how to use them for reporting purposes. This chapter, as well as Chapter 7, “Ratio Analysis,” describes how you can use the information in income statements and balance sheets to improve your insight into business operations.

Neither a particular dollar amount in a financial report, nor the report itself, stands on its own. The knowledge that a company's total operating expenses during 2001 were $250 million is not, by itself, very informative. To understand the meaning of that number, you have to know other figures such as gross profit and operating income. Similarly, although a balance sheet is fundamental to evaluating the financial condition of a company, it does not speak to questions such as these:


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