How to perform a financial statement analysis

If you need to know how to perform a financial statement analysis, you should start with the basics. Most financial experts say you to to know two things about how to perform a financial statement analysis: how much a company makes and how much it spends.

Financial statements have both of these facts, among other statistics and ratios. One of the key figures that will help you know how to perform a financial statement analysis is earnings. The earnings are equated with the stock price in a ratio called the price-to-earnings ratio. Benjamin Graham also identified the price-to-book ratio as an important way to learn how to perform financial statement analysis.

The price-to-book, Graham said, is a key indicator of intrinsic value and helps the investor set a price for the stock.

Graham believed there was a difference between active investors and defensive investors. Active investors spent time learning how to perform a financial statement analysis and researching as many stocks as possible. Defensive investors practiced a "buy and hold" and dollar cost averaging strategies, without performing extensive and continual analysis.

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