Once you understand how to read and understand the financial statements, and calculate and understand financial ratios, it is important to dig deeper to understand why the conditions exist and make decisions to improve the condition.

It is easier for a manager inside a company to conduct financial analysis than an outsider, such as a wall street analyst. The manager knows the business and has more information. It is for this reason that certain high level managers are restricted from trading stock in their firm at certain times.

When conducting financial analysis, it is important to continue to probe until you have the answers. For example, a company may be declining in profit over the past four quarters. The statements provide the financial reason, but without explanation. The material costs may have been increased by a large percentage, or R & D expenses may have quadrupled. The manager may know if and when these expenses will either turn the other way, or produce higher sales and thus profits.