A financial analyst researches macroeconomic and micro economic conditions along with company fundamentals to make business, sector and industry recommendations and can recommend a course of action, such as to buy or sell a company’s stock based upon its overall current and predicted strength.

Though there are a lot of opportunities for financial analysts in the industry, the chances of getting into one of the top financial companies.

1. What are Financial Statements of a company and what do they tell about a company?

Ans. Financial Statements of a company are statements, in which the company keeps a formal record about the company’s position and performance over time. The objective of Financial Statements is to provide financial information about the reporting entity that is useful to existing and potential investors, creditors and lenders in making decisions about whether to invest, give credit or not. There are mainly three types of financial statements which a company prepares

Income Statement – Income Statement tells us about the performance of the company over a specific account period. Financial performance is given in terms of revenue and expense generated through operating and non-operating activities.

Balance Sheet – Balance Sheet tells us about the position of the company at a specific point in time. Balance Sheet consists of Assets, Liabilities and Owner’s Equity. Basic equation of Balance Sheet: Assets = Liabilities – Owner’s Equity.

Cash Flow Statement – Cash Flow Statement tells us the amount of cash inflow and outflow. Cash Flow Statement tells us how the cash present in the balance sheet changed from last year to current year.

2. Is it possible for a company to have positive cash flow but still be in serious financial trouble?

Ans. Yes. There are two examples –

• A company that is selling off inventory but delaying payable will show positive cash flow for a while even though it is in trouble.
• A company has strong revenues for the period but future forecasts show that revenues will decline.

3. What is working capital?

Ans: Working capital is defined as current assets minus current liabilities; it tells the financial statement user how much cash is tied up in the business through items such as receivables and inventories and also how much cash is going to be needed to pay off short term obligations in the next 12 months

4. Is it possible for a company to show positive cash flows but be in grave trouble?

Ans: Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory and delaying payable), and another example involves lack of revenues going forward in the pipeline.

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