Instructions on how to analyze corporate financial statements

Not only accountants – but also directors, investors, banks, shareholders… all need to understand and rely on financial reports to make accurate decisions. Therefore, understanding and analyzing corporate financial reports is an important and indispensable step in the process of corporate governance – whether it is a startup, small and medium-sized enterprise or large corporation. 

This article by Bizzi will provide useful information on how to analyze corporate financial reports, helping leaders have a comprehensive view of the financial situation of the business to make accurate and timely decisions.

What is corporate financial statement analysis and why is it an essential skill?

It is not just about “looking at the numbers”, the way to analyze the financial statements of a business helps to turn accounting data into real action strategies. If the accountant only prepares reports without analyzing, it means that you have only completed 50% of financial work.

Definition of Corporate Financial Statement Analysis 

Corporate financial reporting is the process of reviewing, evaluating and interpreting information presented in financial statements to measure the performance, profitability, financial position and potential risks of a business.

This process is based on data in basic financial reports (Balance Sheet, Income Statement, Cash Flow Statement, Notes to Financial Statements) combined with analytical methods (comparison, financial ratios, trends, structures, etc.) to provide objective assessments and support management, investment or credit decisions.

The Importance of Corporate Financial Statement Analysis for Every Position in a Company

Analyzing corporate financial statements is not only the job of the accounting department but also a strategic tool for all departments and leadership levels. Each position in the organization has a different perspective and need to exploit financial information, thereby forming accurate and timely decisions.

• For administrators

Financial statements are “maps” that help management determine the current position and future direction of the business. Through analysis, managers can:

• • Evaluate the performance of each department, project or product.
  • Identify strengths to promote, and identify weaknesses that need improvement.
  • Detect early signs of risk such as declining profits, cash flow imbalances or increasing debt burden.
  • Make strategic decisions: expand markets, restructure operations, cut costs or raise capital.
• For investors
  

Investors need a comprehensive picture of a company’s profitability and growth before investing. Financial statement analysis helps them:

• • Evaluate profit potential and profitability.
  • Compare performance with other businesses in the same industry.
  • Determine financial risk to consider investment ratios and stock holding strategies.
• For banks and credit institutions
• • Lending institutions use financial statements as a tool to assess a business's reputation and ability to repay its debts. The analysis helps them:
  • Determine short-term and long-term solvency.
  • Assess cash flow stability and ability to generate profits to repay debt.
  • Minimize credit risk and set appropriate lending limits.
• For suppliers

When providing goods or services, suppliers need to ensure that their partners are able to pay on time. Financial statement analysis helps them:

• • Assess financial health and affordability.
  • Decide on trade credit terms.
  • Maintain a sustainable partnership based on trust.

• Modern technology – the “right arm” of financial analysis

In the era of strong AI development, the application of technology solutions helps businesses process data faster, more accurately and more transparently than ever. A comprehensive financial management platform like Bizzi brings many outstanding benefits:

• • Transparent financial data, updated real-time: All reports and data are synchronized as soon as a transaction occurs.
    
  • Automatically collect – check – classify invoices, documents, and expenses: Minimize manual errors, save data entry time.
  • AI assistant analyzes and visualizes data: Support management and departments to make quick and accurate decisions.
  • Ensure compliance with accounting standards and tax regulations: Minimize legal risks and costs of handling violations.

Bizzi not only serves the accounting department but is also the platform for the entire business to operate based on. Accurate, transparent and easily accessible financial data, creating sustainable competitive advantages in the market.

Core Financial Statements to Understand

Financial statements are not just a collection of dry numbers prepared according to accounting regulations, but a tool that reflects the “health” and “blood” of a business. They allow managers, investors, banks, suppliers, etc. to understand the overall picture of the financial situation, thereby making accurate decisions.

According to Vietnamese Accounting Standards (VAS), a basic set of financial statements includes four components: Balance Sheet, Income Statement, Cash Flow Statement and Notes to Financial Statements. Of these, the first three are the backbone of the analysis process.

Below is a complete summary of all types of financial reports in enterprises, including mandatory reports according to Vietnamese Accounting Standards (VAS):

Balance Sheet (BSC): A Snapshot of Financial Health

The balance sheet shows all the assets a business owns and the capital used to create those assets at a specific point in time (for example, December 31 of the fiscal year).

• Structure:
  • Asset – Includes short-term assets (cash, inventory, receivables…) and long-term assets (factories, machinery, real estate, intellectual property rights…).
  • Capital – Including liabilities (short-term, long-term) and equity (contributed capital, undistributed profits…).
• Analysis objectives:
  • Assessment of short-term solvency: Compare current assets with current liabilities to see if a business has the ability to pay its debts as they come due.
  • Determine capital structure: How much % of borrowed capital is the business using compared to its own capital? Is the financial leverage ratio safe?
  • Measuring stability: A healthy balance sheet usually has a balance between profitable assets and stable capital sources, limiting too high short-term debt.
• Real life example:

A company A has short term assets 200 billion, short-term debt 150 billion → Current ratio = 200/150 = 1.33This shows that the company has enough short-term solvency but the margin of safety is not too high.

Business performance report (BCKQHDKD): Assessing profitability

This report reflects revenue, expenses, and profits over an accounting period (month, quarter, or year).

• Main structure:
  • Sales and service revenue
  • Cost of goods sold → create gross profit
  • Selling expenses, business management expenses
  • Net operating profit
  • Financial expenses, other income
  • Profit before and after tax
• Analysis objectives:
  • Profitability assessment: Calculate gross profit margin and net profit to see how effectively a business manages costs and selling prices.
  • Identify growth trends: Compare revenue and profit over periods to detect expansion or decline trends.
  • Cost structure analysis: How do selling, general, and administrative expense ratios affect profits?
• Real life example:
  

Company B has revenue 500 billion, cost price 350 billion → gross profit 150 billion → Gross profit margin = 150/500 = 30%. If this ratio is higher than the industry average (25%), it indicates good cost control or premium product positioning.

Cash Flow Statement (BCLCTT): Live Cash Flow Analysis

• BCLCTT said actual cash flow in and out of a business in a period, classified into three groups of activities:
  • Business Operations (CFO): Money collected from customers, paid to suppliers, paid salaries, paid interest on loans...
  • Investment Activities (CFI): Buying/selling fixed assets, contributing investment capital, recovering investment...
  • Financial Activities (CFF): Borrowing, repaying debt, issuing shares, paying dividends…
    
• Analysis objectives:
  • Assess the ability to generate cash from core operations: A sustainable business needs a consistently positive CFO.
  • Track investment strategy: A large negative CFI may indicate that the business is investing in expansion, while a positive CFI is usually an asset sale or capital return.
  • Determine debt repayment and dividend payment capacity: Financial cash flows help predict debt repayment capacity and dividend policy.
• Real life example:

Company C has CFO = +80 billion, CFI = -50 billion, CFF = -20 billion → net cash flow = +10 billion. This shows that the company generates money from operations, uses most of it to invest and pay down debt, and still has cash left over.

Financial Statement Notes: The “Handbook” that Explains the Numbers

With the above problem, Bizzi's solution helps automate and streamline the process of managing costs, invoices, and debts, ensuring that input data for these reports is always accurate and updated in real time. Specifically:

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Professional methods and techniques for analyzing corporate financial statements

To comprehensively assess the performance and financial health of a business, financial professionals, management accountants, investors, banks and auditors often apply many different methods and techniques of financial statement analysis. Each method has its own advantages and is often combined to ensure a multi-dimensional perspective.

Methods of financial statement analysis

• Comparative method
  • Purpose: Determine the variation of financial ratios over time or compared to industry standards.
  • How to do:
    • Compare data between consecutive periods to identify trends (growth, decline, stability).
    • Compare with businesses in the same industry to assess competitive position.
  • For example: Compare this year's gross profit margin with last year's or with the industry average to see production and business efficiency.
• Ratio method
  • Purpose: Analyze the relationship between financial ratios to evaluate aspects such as solvency, capital efficiency, and profitability.
  • How to do: Calculate and compare ratios such as:
    • Liquidity ratio: Current Ratio, Quick Ratio
    • Profitability ratio: ROA, ROE, Net profit margin
    • Operating ratio: Inventory Turnover, Accounts Receivable Turnover
  • For example: If ROE is high but ROA is low, further analysis is needed to see if the business is relying heavily on financial leverage.
• Factor analysis method
  • Purpose: Separate and measure the impact of each factor on a specific financial indicator.
  • How to do: Apply models such as DuPont to analyze the impact of profit margin, asset turnover, and financial leverage on ROE.
  • For example: If ROE is decreasing, it could be due to falling profit margins, slowing asset turnover, or a change in the debt/equity ratio.

Financial statement analysis techniques

• Horizontal Analysis
  • Concept: Compare financial ratios over multiple periods to determine whether they are increasing, decreasing, or stable.
    
  • Application: Track revenue growth over 3–5 years; analyze whether expenses are growing faster or slower than revenue.
    
• Vertical Analysis
  • Concept: Convert each indicator to a percentage of a base figure to make it easier to compare between periods or between businesses of different sizes.
  • Application: In the income statement, show selling expenses, administrative expenses, and cost of goods sold as a multiple of revenue to evaluate the cost structure.
• Ratio Analysis
  • Concept: Calculate key financial ratios and compare against industry benchmarks or internal targets.
  • Application:
    • Profitability: Compare ROE, ROA with competitors
    • Liquidity: Assessing the ability to meet short-term obligations
    • Financial leverage: Analyze debt/equity ratio to see the level of financial risk.

Guide to analyzing important financial indicators

Below is a detailed guide on how to analyze important financial indicators in corporate financial reports, applicable to both finance and accounting students and managers who want to understand the business's performance.

Solvency Analysis – Can the Business Pay Its Debt?

• Current Ratio
  • Recipe: Current Assets / Current Liabilities
  • Meaning: Indicates the extent to which short-term obligations are covered by current assets.
  • Interpretation:
    • > 1: The business has the ability to pay short-term debts.
    • < 1: Potential risk of working capital imbalance.
• Interest Coverage Ratio
  • Recipe: EBIT / Interest Expense
  • Meaning: Measures the ability to pay interest from earnings before interest and taxes.
  • Reference threshold: > 3 is considered safe, below 1.5 is a warning sign.
• Receivable Turnover Ratio
  • Recipe: Net Sales / Average Accounts Receivable
  • Meaning: Reflects the speed of collecting money from customers. High turnover means fast collection, low risk of bad debt.

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• Notify debt and payment status to relevant departments, helping to synchronize processing procedures and make timely decisions.

Performance Analysis – Is the business running well?

• Inventory Turnover Ratio
  • Recipe: Inventory Turnover = Cost of Goods Sold / Average Inventory
  • Meaning:
    • High rotation: Fast selling, low inventory → reduce storage costs, reduce the risk of obsolete goods.
    • Low RPM: Slow-selling, stagnant goods → risk of price reduction or product cancellation.
      
• For example:
  • Company A has a turnover of 12 → on average, the entire warehouse is rotated once a month.
  • Enterprise B only = 4 → takes 3 months to rotate, capital is "locked" for a long time.
• Debt to Equity Ratio
  • Recipe: D/E = Total Liabilities / Owner's Equity
  • Meaning: Reflects the level of debt used. High ratios increase expected returns but also increase financial risk.
    • < 1: Safe, mainly using own capital.
    • 1 – 2: Make good use of financial leverage.
    • > 2: High risk, easy to lose the ability to pay when revenue decreases.

• • Analysis: It is advisable to compare with the industry average, as each sector has a different capital structure (for example construction is usually higher than services).

Profitability Analysis – Is the business making a profit?

This group of indicators answers the question “How much profit does the business generate for each dollar of revenue or assets or capital invested?”

• Gross Profit Margin
  • Recipe: GPM = (Net Revenue – Cost of Goods Sold) / Net Revenue
  • Meaning: Indicates the ability to control cost of goods sold.
  • For example: If the enterprise's GPM = 40%, it means that for every 100 VND of revenue, the enterprise retains 40 VND to pay for sales, management and profit costs.
• Net Profit Margin (ROS)
  • Recipe: ROS = Profit after tax / Net revenue
  • Meaning: Reflects the final profit remaining after deducting all expenses and taxes
  • Threshold: High ROS often indicates a business has a competitive advantage or good cost control.
• Return on Assets (ROA)
  • Recipe: ROA = Profit after tax / Average total assets
  • Meaning: Measures how effectively assets are used to generate profits. The higher the ROA, the better the company is utilizing its resources.
• Return on equity (ROE)
  • Recipe: ROE = Profit after tax / Average equity
  • Meaning: Indicates the efficiency of capital use by shareholders.
  • Reference threshold: ROE > 15% is considered attractive to investors, but needs to be compared with the industry average.

Cash Flow Analysis – Is the cash flow stable and sustainable?

Cash flow is the "blood" of a business. Many companies report profits on paper but still go bankrupt due to lack of cash.

• Net Cash Flow from Operations (CFO)
• • Meaning: Shows the ability to generate cash from core operations.
  • Analysis:
    • Positive and steadily increasing CFO → business is generating real money.
    • Continuous negative CFO → need to consider the cause (increased inventory, slow customer payment…).
• Free Cash Flow to Equity (FCFE)
• • Recipe: FCFE = CFO – Capital Expenditures + Net Debt 

• Token: A stable positive FCFE shows the ability to finance growth and return profits to shareholders without additional borrowing.

Important notes to perform accurate financial statement analysis

Below are important notes to help accountants or managers analyze corporate financial reports accurately, professionally and in depth, avoiding common errors when reading data:

Comparison over time and with competitors

Trend Analysis:

• Tracking trends in indicators over multiple periods (months, quarters, years) helps identify growth, unusual fluctuations or potential risks.
• For example: Revenue increases continuously but net profit decreases → warning that management costs or cost of goods sold are increasing rapidly.

Compare with competitors in the same industry (Benchmarking):

• Helps assess competitive position, operational capabilities and financial performance relative to industry averages.
• Example: Inventory turnover ratio is lower than industry average → ineffective inventory management, needs improvement.

Consider the point in time and period nature of the data

Balance sheet:

• Point-in-time, captures all assets, liabilities, and equity at a given date.
• Therefore, analysis should pay attention to instantaneous fluctuations, should not be evaluated based on emotions but must be based on many time points.

Income Statement & Cash Flow Statement:

• Periodic, reflecting operating results during the period (month, quarter, year).
• It is necessary to pay attention to external or seasonal factors that affect revenue and costs to analyze the correct context.

Assessing the reliability and influence of external factors

• Macro factors such as tax policies, interest rate fluctuations, inflation, or raw material market fluctuations all directly affect financial results.
• Management quality, business strategy, and legal risks also have an impact but are not clearly shown on the financial statements.
• Therefore, financial statement analysis needs to combine both data and management information, market context to make accurate decisions.

Choosing effective analysis support tools

• Automating data collection and processing helps ensure accuracy, transparency, and real-time data delivery.

In the context of businesses needing to make quick and accurate decisions, using Excel alone to prepare and analyze financial reports may no longer be enough. Bizzi offers a comprehensive cost control solution, integrated with a financial-accounting AI assistant, helping businesses:

• Automate data collection and processing from invoices, payment vouchers, contracts, etc.
• Real-time financial data updates, minimizing the risk of data bias.
• Speed up analysis and decision making, thanks to intuitive dashboards, instant reporting.
• Ensuring accuracy and transparency, improve cost and budget control efficiency.

With Bizzi's support, the Finance and Accounting department can transform itself from a "numbers keeper" to a "strategic partner in decision making."

Conclude

In short, analyzing a company's financial statements is not just an accounting task, but the foundation for making smart and strategic business decisions. Mastering this skill helps businesses continuously develop and maintain their competitive position.

Applying automation technology solutions like Bizzi will help the financial management and analysis process become more efficient, accurate and transparent than ever. Bizzi provides a comprehensive cost control system and AI assistant for the finance and accounting department, helping businesses have real-time, accurate data to support analysis and make quick, reliable decisions.

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