How to Analyse Financial Statements for University Assignments

How to Analyse Financial Statements for University Assignments (Step-by-Step)

Your last assignment came back with the same comment over and over again: "lacks analysis". You had all the right numbers. You just didn't know what to do with them. If that sounds familiar, you're not alone. Most of the students struggle with the same thought about how to analyse financial statements and end up with no clear answer to their queries.

So here is an effective solution for you. This guide walks you through the analysis with one simple step at a time. By the end, you'll know exactly how to read a balance sheet, run the three core techniques, and turn raw numbers into a discussion that actually earns marks. Keep reading, and that blank page will start filling itself in.

Core Areas Covered Under Financial Statement Analysis

Financial statement analysis is the study of a company's official financial reports to understand how well the business is truly performing, rather than guessing from the surface level. To analyse financial statements properly, you first need to know the four core reports that make up the full picture, as each has its own understanding and working criteria.

• The balance sheet shows what a company owns and owes on one specific date. It commonly breaks down into assets (what you own), liabilities (what you owe), and equity (the owner's stake) of the company.
• The income statement shows how much money came in and went out over a period, like a year, and tells you whether the company made a profit or not.
• The cash flow statement shows the actual cash moving through the business. A company can look profitable on paper and still run short on cash, so this report matters more than students usually think.
• The statement of changes in equity shows how the owners' stake in the business shifted over the period of time. It also covers profits of the company and any dividends that are paid out.

These are the basics of any financial statements and work together to outline a company's assets, debts, profitability, and cash movement over a specific time. Once you understand what each report reveals, let’s go through the steps required to analyse a company's financial statements. If any steps or the process seem difficult to you, our support on finance assignments can help you understand each with more clarity.

Step 1: Understand the Business Before You Touch the Numbers

Here's a mistake that costs students marks every single year: jumping straight into calculations without knowing anything about the company.

A 20% drop in profit means something different for an airline during a fuel crisis than it does for a supermarket in a normal year. Before you calculate anything, look into:

• The company's industry and how it typically performs
• Its main competitors, and how the company compares to them
• Anything unusual during the period, like a recession or a new product launch

Markers want to see that you understand the story behind the numbers, not just the numbers themselves. With that context in hand, you're ready for the first real technique.

Step 2: The Horizontal Analysis

Horizontal analysis compares the same line item's values across two or more time periods so that you can see the actual position of the company, whether it's growing, shrinking, or holding steady.

Here is the formula for this:

% Change = (Current Year Figure − Previous Year Figure) ÷ Previous Year Figure × 100

Say a company earned £50,000 in revenue last year and £55,000 this year. Plug that into the formula:

(55,000 − 50,000) ÷ 50,000 × 100 = 10%

Revenue grew by 10%. When you are working on your assignment, don't just stop at the number. Instead, ask questions like, 'Did the company launch something new?' Did prices rise? And your answers will provide you with an actual analysis, and your tutor will give you an extra mark.

Once you've tracked the trend over time, the next step is to see how each piece fits into the bigger picture.

Step 3: The Vertical Analysis

Vertical analysis turns every line item into a percentage of one main figure within the same statement. Usually it is the total revenue on the income statement or total assets on the balance sheet. It is mostly used to compare companies of different sizes or see internal cost shifts over time.

Line Item ÷ Total (Revenue or Assets) × 100

If a company spent £15,000 on staff wages out of £50,000 in total revenue:

15,000 ÷ 50,000 × 100 = 30%

Staff wages made up 30% of revenue. This is useful because it lets you compare companies of completely different sizes fairly. A small local shop and a national chain can be compared side by side once everything is turned into percentages.

Now that you've seen trends and proportions, it's time for the technique that carries the most weight in most assignments: ratio analysis.

Step 4: Ratio Analysis

Financial ratio analysis is a method which evaluates a company's health, performance, and trends by dividing key line items from financial statements such as the balance sheet and income statement. It turns raw numbers into quick, meaningful health checks to compare a business against past results or industry peers. Most assignments expect you to cover four main categories.

Liquidity Ratios

These show whether a company can pay its short-term bills.

Current Ratio = Current Assets ÷ Current Liabilities

A result above 1 usually means the company can cover what it owes in the near future. Below 1 is a warning sign worth mentioning in your discussion.

Profitability Ratios

These show how much profit a company keeps from what it earns from sales and assets.

Net Profit Margin = Net Profit ÷ Revenue × 100

A higher margin generally means the company runs efficiently. A falling margin over time is worth investigating and explaining.

Solvency Ratios

These help you detect how much a company relies on debt and assess its long-term stability.

Debt-to-Equity Ratio = Total Debt ÷ Total Equity

In results, if it shows a high ratio, then it means that the company depends heavily on borrowed money, which can be risky if interest rates rise.

Efficiency Ratios

These show how well a company uses its own assets.

Asset Turnover = Revenue ÷ Total Assets

A higher number means the company generates more revenue from every pound of assets it holds.

You've now covered every major technique. The part that follows is where most students either gain or lose marks.

Step 5: Interpreting and Writing Up Your Findings

Working out a ratio is the easy part. Explaining what it means is where most marks are won or lost. Here's how to turn your numbers into a strong write-up, in three simple parts:

• State the finding. Write down what the number actually is. For example, "the current ratio is 1.5."
• Interpret it. Explain what that number tells you about the company. Is 1.5 good or bad? Compare it to last year's figure, a competitor, or the industry average, since a number on its own means very little.
• Explain the implication. Say what this might mean going forward. Could it affect how the company pays its bills or how investors see it?

This finding, interpretation, and implication pattern is exactly what markers are examining the most. So, use it for every ratio and every technique in your assignment, and your write-up will read like real analysis instead of a list of numbers.

Common Mistakes UK Markers Penalise

• Presenting ratios with no comparison point, so the number has no context
• Listing calculations without explaining what they mean
• Focusing only on the income statement and ignoring cash flow
• Forgetting to reference where financial data came from, such as an annual report

Avoid these four habits, and your assignment will already read stronger than most.

After reading this guide on “how to analyse financial statements”, you must have understood the process of analysing a financial statement step by step. It feels overwhelming at first, but it comes down to the same five steps every time: understand the business, run horizontal analysis, run vertical analysis, calculate your ratios, then interpret what you found. Work through it in that order, and the assignment builds itself. If you get stuck applying these steps to your specific case study, our finance tutors at New Assignment Help UK are always here to look over your draft and talk through your reasoning with you.

References

• ACCA (2023) Ratio analysis. Available at: https://www.accaglobal.com/us/en/student/exam-support-resources/fundamentals-exams-study-resources/f2/technical-articles/ratio-analysis.html (Accessed: 14 August 2026).
• ACCA (2023) Financial Reporting (FR) – examiner approach. Available at: https://www.accaglobal.com/in/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html (Accessed: 14 August 2026).
• Companies House (2026) Find and update company information. Available at: https://find-and-update.company-information.service.gov.uk/ (Accessed: 14 August 2026).
• GOV.UK (2026) Searching the Companies House register. Available at: https://www.gov.uk/guidance/searching-the-companies-house-register (Accessed: 14 August 2026).
• Corporate Finance Institute (2024) Financial ratio analysis. Available at: https://corporatefinanceinstitute.com/resources/accounting/financial-ratio-analysis/ (Accessed: 14 August 2026).

Author Bio

Emily Cooper   8 | MSc in Accounting and Finance

Emily Cooper is a senior finance tutor and content writer at New Assignment Help UK and holds over 8 years of experience teaching financial accounting and business analysis to university students across the UK. She is a master’s graduate in accounting and finance and is a member of the Association of Chartered Certified Accountants (ACCA) as well. Emily has worked closely with undergraduate and postgraduate students and knows how to help them break down complex financial reports into simple, markable assignments effectively. She enjoys turning tricky finance topics into guides that students can actually follow, without the jargon.