Assignment 1: First financial analysis

Financial Statement Analysis is a method of reviewing and analyzing a company’s accounting reports (financial statements) in order to gauge its past, present or projected future performance. This process of reviewing the financial statements allows for better economic decision-making. The main purpose of financial statement analysis is to utilize information about the past performance of the company in order to predict how it will fare in the future. Another important purpose of the analysis of financial statements is to identify potential problem areas and troubleshoot those. Followers of fundamental analysis use the quantitative information gleaned from financial statements to make investment decisions. (Investopedia, 2017) In the following, some specific parts of financial statements will be analyzed as well as the structure of the presented financial data. The provided financial data is from Microsoft Corporation and includes a current income statement, a balance sheet, a cash-flow statement and many more statements, which will help in the process of decision-making. The income statement has some limitations since it reflects accounting principles. For example, a company's depreciation expense is based on the cost of the assets it has acquired and is using in its business. The resulting depreciation expense may not be a good indicator of the economic value of the asset being used up. To illustrate this point let us assume that a company's buildings and equipment have been fully depreciated and therefore there will be no depreciation expense for those buildings and equipment on its income statement. Financial statement analysis includes a technique known as vertical analysis. Vertical analysis