Users of financial statements utilize various tools to assess the financial health of different companies. These tools may involve financial and non-financial data. One of the most clever financial measures is the financial ratio analysis derived by calculating items from the company’s financial statements. There are five categories of financial ratios: leverage ratios, liquidity ratios, operational ratios, profitability ratios, and solvency ratios. Another measure that is an integral part of the financial statements is the notes to the financial statements. These notes, sometimes called the financial review, result from the application of the full disclosure concept. The notes disclose details of amounts summarized for financial statement presentation; explain which permissible alternative accounting practices have been used by the company, and provide detailed disclosure of information needed to have a full understanding of the financial statements (Marshall 2004). Among the range of accounting policies disclosed in the notes are inventory cost-flow assumptions and depreciation method. There is a discussion on employee benefits including the employee stock option and stock purchase plans. Accounting of income taxes and amortization of intangible assets are described. Calculation of earnings per share of common stock may also be provided. And to fully commit to the application of the full disclosure concept, a description of significant contingencies and commitments like litigation or loan guarantees and other significant events that have occurred since the balance sheet date are given.
Non-financial measures are qualitative aspects of a company’s business and are essential tools in comparing the financial health of different companies. These include co ...