Business Strategy

Business Strategy Analysis:

It is an important starting point for the analysis of financial statements because it allows the analyst to probe the economics of the firm at a qualitative level. The main goal of this step is to generate profit expectations through industry analysis and competitive strategy analysis. The purpose is to identify what drives profit and what are the risks being taken. It is a more qualitative approach directed at evaluating the company’s profit potential. This analysis on the other hand also enables one to determine whether current profitability is sustainable.

It is crucial to begin financial statement analysis with a compnay’s strategy because it provides a foundation for subsequent Analysis. This analysis discusses contemporary tools for analysing a company’s industry, its competitive position and sustainability within an industry, and the company’s corporate strategy.

This is an essential step for analyst because:

* It gives a better framework to the subsequent accounting and financial analysis. For example, to identify key accounting policies one should identify key success factors and key business risks.

* It gives an assessment of a firm’s competitive strategy facilitates evaluating whether current profitability is sustainable.

* This analysis enables analyst to make sound assumptions in forecasting a firm’s future performance.

Accounting Analysis:

The purpose of this step is to evaluate the degree to which a firm’s accounting captures the business reality. In accounting analysis the focus does not only remain on accounting rules. But also general approaches to analyse assets, liabilities, entities, revenues and expenses, are developed.

As an analyst

* One can assess the degree of distortion in a firm’s accounting numbers.

* It also allows analyst to undo any accounting distortions by recasting a firm’s accounting numbers to create unbiased accounting data.

It is related with other steps because sound...