Financial statement analysis is part of business analysis. Business analysis is the evalua-tion of a company's prospects and risks for the purpose of making business decisions.These business decisions extend to equity and debt valuation, credit risk assessment,earnings predictions, audit testing, compensation negotiations, and countless otherdecisions. Business analysis aids in making informed decisions by helping structure thedecision task through an evaluation of a company's business environment, its strategies,and its financial position and performance. To illustrate what business analysis entails we turn to Colgate. Much financial infor-mation about Colgate-including its financial statements, explanatory notes, andselected news about its past performance-is communicated in its annual repro-duced in Appendix A'near the end of this book. The annual report also provides quali-tative information about the Colgate's strategies and future plans, typically in theManagement Discussion and Analysis, or MD&A, section. An initial step in business analysis is to evaluate a company's business environmentand strategies. We begin by studying Colgate's business activities and learn that it is a lead-ing global consumer products company. Colgate has several internationally well-knownbrands that are primarily in the oral, personal, and home care markets. The company hasbrands in markets as varied as dental care, soaps and cosmetics, household cleaning prod-ucts, and pet care and nutrition. ……
