realdealcpa-vr/iron-jarvis/financial-analysis

Financial Statement Analysis

Use this skill when evaluating a company's financial health from its statements. The aim is a defensible read on profitability, liquidity, solvency, and trend, grounded in the numbers rather than narrative.

Methodology

1. Read the three statements together. The income statement shows

performance over a period, the balance sheet shows position at a point in time, and the cash flow statement reconciles earnings to actual cash. Never judge profit without checking whether it converts to cash.

1. Normalize. Strip out one-time items, restatements, and accounting changes

so period-over-period comparisons are like-for-like.

1. Compute key ratios.

• Profitability: gross margin, operating margin, net margin, return on

equity and return on assets.

• Liquidity: current ratio and quick ratio.
• Solvency / leverage: debt-to-equity and interest coverage.
• Efficiency: inventory turnover, receivables days, asset turnover.

1. Analyze trend and context. Compare at least three periods to reveal

direction, and benchmark against industry peers — a ratio is only meaningful relative to history and comparables.

1. Check cash quality. Compare operating cash flow to net income and watch

free cash flow; persistent gaps signal aggressive accounting or distress.

Output

State the headline assessment, support it with the most diagnostic ratios and their trend, call out red flags (declining margins, rising leverage, weak cash conversion), and note the limitations of the available data.