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Financial statement analysis is a vital part of a company’s performance. It shows how profitable a company is and the accuracy of its financial statements (Dowdell 2020). Financial statement analysis evaluates all aspects of a business, including projects, budgets, and other transactions, to ensure it is stable and liquid (Dowdell 2020). It is the most efficient way to analyze the fundamental aspects of a company. I used to work for a small restaurant, and financial analysis was essential for the company to succeed. Profitability ratios are the most efficient type of financial statement analysis to use for a restaurant. Profitability ratios analyze a company’s ability to earn a profit and assists in understanding its operating efficiency (Dowdell 2020).

The net profit ratio measures the restaurant’s overall profitability. It is the measure of after-tax profits to net sales (Dowdell 2020). There were a lot of other restaurants in the area, so competition was high. However, total revenue was always more than the total expenses leaving a sizeable net profit margin. The restaurant had few expenses, such as payroll, supplies, utilities, and administrative expenses. Only a few people working there, including myself, but the business was very successful. The restaurant is always busy, so it is crucial to make sure there was enough inventory, especially for specific occasions. Turnover ratios, such as inventory ratio, ensure that inventory is used for its intended purpose and that the restaurant is always fully stocked (Dowdell 2020). There is mostly a high turnover ratio because the restaurant sells food very quickly.

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Dowdell, Thomas D., Klamm, Bonnie K., & Andersen, Margaret L. (2020). Internal Controls and Financial

Statement Analysis. Journal of Theoretical Accounting Research, 15(2), p. 34-57.

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