financial-statement-review

Reference Files

• references/industry-benchmarks.md - Ratio benchmarks by industry (SaaS, manufacturing, retail, professional services, healthcare). Read this in Step 4 when calculating ratios and when you need industry-specific thresholds to compare against.

Overview

Based on "Financial Intelligence" by Karen Berman & Joe Knight and "The Interpretation of Financial Statements" by Benjamin Graham. Financial statements are not just numbers - they are a compressed story of business decisions. The goal of a review is not to recite figures but to answer three questions: Is this business profitable in a way that will last? Is it financially stable? Is the reported profit converting to real cash?

Graham's core principle: always read all three statements together. The income statement shows profit; the balance sheet shows what was built with it; the cash flow statement shows whether the profit is real.

Workflow

Step 1: Read the Income Statement for quality of earnings

Start with the income statement and look beyond the headline net income number.