1. Standardized financial statements. We explained that differences in firm size make it difficult to compare financial statements, and we discussed how to form commonsize statements to make comparisons easier.
2. Ratio analysis. Evaluating ratios of accounting numbers is another way of comparing financial statement information. We therefore defined and discussed a number of the most commonly reported and used financial ratios. We also discussed the famous Du Pont identity as a way of analyzing financial performance, and we examined the connection between profitability, financial policy, and growth.
3. Using financial statements. We described how to establish benchmarks for comparison purposes and discussed some of the types of information that are available. We then examined some of the potential problems that can arise.

After you have studied this chapter, we hope that you will have some perspective on the uses and abuses of financial statements. You should also find that your vocabulary of business and financial terms has grown substantially.