Financial analysis is like a physical check-up for your finances. It lets you know how you're doing. With financial analysis, the telling points are the Balance Sheet and the Income Statement. Figuring out what they are telling you is done by analyzing financial ratios - mathematical relationships between different entries on the Balance Sheet and the Income Statement.

First, you need to gather your firm's financial information for the last 3 years. Enter the information into the Balance Sheet and Income Statement. All sorts of ratios are available from this information. The most helpful ones are listed on the Ratio Analysis Sheet (found within this article). These ratios help you spot problems and allow you to compare yourself to industry averages. Two comparisons are possible on the Ratio Analysis Sheet: you against the industry norm, and you against your past years' performances. By regularly using financial ratio analysis, you can spot small problems before they become big ones.