Introduction
Having worked as an employee at H&M, a retail company that operates a chain of stores selling clothing and accessories, I learned a great deal about financial statement analysis. Financial statement analysis for this organization involved reviewing the income statement, balance sheet, and cash flow statement by the accounting team lead (Dumitru Soare et al., 2022).
Components of Financial Statement
The income statement provides information on H&M’s revenues and expenses, and by comparing these figures over time, management can identify trends in sales and costs. The balance sheet would display the company’s assets, liabilities, and equity. By comparing these figures over time, management can assess the company’s liquidity and solvency (Dumitru Soare et al., 2022). The cash flow statement would detail H&M’s incoming and outgoing cash, allowing management to evaluate the company’s capacity to produce cash by examining changes over time.
Aspects of Financial Statement Analysis
One key aspect of financial statement analysis is using ratios and other metrics to evaluate the company’s performance and position. For example, H&M could calculate its gross margin ratio, which compares gross margin and gross revenue, to assess how much of each sales dollar is left over after accounting for the cost of clothing sold. A high gross margin ratio indicated that the company was selling clothes at a markup and had a good pricing strategy (Dumitru Soare et al., 2022). Conversely, a low gross margin ratio may suggest that the company is selling items with a minimal markup, indicating a need to reconsider its pricing strategy.
Another important aspect of financial statement analysis is the use of benchmarking. The retail company compared its financial performance and position to those of other companies in the same industry, such as Next. This would enable management to identify areas where the company performed well and those that needed improvement (Dumitru Soare et al., 2022).
Conclusion
In conclusion, financial statement analysis is a powerful tool used by H&M to assess its performance and monitor its progress. By assessing financial documents and evaluating productivity and status using proportions and other measures, H&M identifies any actions that hinder its performance, correcting them to achieve its highest efficiency. By employing these strategies, management can make more informed decisions and take steps to improve the company’s economic health and standing.
Reference
Dumitru Soare, C.-L., Gîju, G. C., Drăgoi, V. E., & Preda, L. (2022). A critical analysis of the current financial statements and how they manage to provide or imagine faithfully to complete the market value of the companies. Valahian Journal of Economic Studies, 13(2), 77–82. Web.