Skip to main content

Chapter 17: Financial Statement Analysis

Chapter Introduction​

Marie has been preparing her restaurant's financial statements, but she's not sure what they mean. "I have all these numbers, but how do I know if my business is doing well?" she asks Monsieur Schneider. "How do I compare this year to last year? How do I know if I'm better or worse than other restaurants?"

Monsieur Schneider explains that financial statement analysis helps answer these questions. "By calculating ratios, comparing periods, and benchmarking against industry standards, you can understand your business's performance. In Luxembourg, there are specific benchmarks and ratios that are useful for SMEs."

Financial statement analysis involves:

  • Calculating financial ratios
  • Comparing periods (horizontal analysis)
  • Comparing to benchmarks (vertical analysis)
  • Identifying trends
  • Evaluating performance

In Luxembourg, financial statement analysis is important because:

  • Helps evaluate business performance
  • Identifies strengths and weaknesses
  • Supports decision-making
  • Helps with financing
  • Provides benchmarks for SMEs

This chapter teaches you about financial statement analysis, how to calculate and interpret ratios, how to prepare comparative and common-size statements, and Luxembourg-specific benchmarks and performance indicators.

By the end of this chapter, you'll understand how to analyze financial statements and use the information to make better business decisions—just like Marie will learn to do for her restaurant.

Why It Matters​

Financial statement analysis is essential because:

  • Performance Evaluation: Understand how business is performing
  • Trend Identification: See patterns over time
  • Benchmarking: Compare to industry standards
  • Decision-Making: Support business decisions
  • Stakeholder Communication: Communicate with investors, creditors

Luxembourg-Specific Importance:

  • Helps evaluate SME performance
  • Provides Luxembourg benchmarks
  • Supports financing decisions
  • Helps with compliance
  • Important for stakeholders

Understanding financial statement analysis helps you:

  • Evaluate performance
  • Identify issues early
  • Make informed decisions
  • Communicate effectively
  • Improve business operations

Learning Objectives​

By the end of this chapter, you should be able to:

  1. Describe the need for and purpose of financial statement analysis
  2. Prepare comparative financial statements
  3. Prepare common-size financial statements
  4. Compute and interpret financial ratios
  5. Analyze and interpret return on assets
  6. Describe other measures used to analyze a company (appendix)
  7. Understand Luxembourg financial analysis benchmarks
  8. Explain Luxembourg SME performance indicators