The protocol below has a formal name in the professional syllabuses, and knowing it costs nothing and saves an exam mark. The financial statement analysis framework runs in six steps: state the purpose and objectives, gather the data, process the data, analyse and interpret the processed data, report the conclusions, and update the analysis. Nothing in the list is new to you. What the name buys you is an output at every step that someone else can inspect, and that's what separates analysis from opinion.
| Framework step | Its output | Where this module already does it |
|---|---|---|
| 1. State the purpose and objectives | the question, and the rows that answer it | protocol step 1: which of the five spine questions you are serving |
| 2. Gather the data | filings, notes, peer set, sector reference | protocol step 2, plus the true-peer test |
| 3. Process the data | a normalised, basis-consistent table | protocol step 3 and the hygiene checklist, with its log |
| 4. Analyse and interpret | the five comparisons, run in order | protocol steps 4 and 5 |
| 5. Report the conclusions | the reading, conclusion first, every claim numbered | protocol step 6 |
| 6. Update | the file, the log, the sector sheet, revisited | protocol step 7 |
Analysts lose marks and money at two of these steps. Step 1 gets skipped almost everywhere. A table built without a stated question grows rows until it answers none of them, and the fix is the fifteen-row limit below. Step 6 gets skipped because it feels like admin. Yet it's the step that turns a one-off teardown into a sector view, and it's why the normalisation log travels with the table instead of living in your head.
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What are the seven steps of the benchmark protocol?
Print this. It becomes the "economics" engine inside the deep-dive workbook you'll build.
- Frame the question. Which of the five spine questions are you serving? Usually it's Q2, is it a good business. Pick the ~15 rows that answer it: margins, returns, growth, cash quality, efficiency, leverage, plus 1 to 2 sector KPIs.
- Fix the basis. Consolidated, with any exceptions stated. Fiscal periods aligned or calendarized. One currency, or currency-free ratios. Real vs nominal declared for cross-border growth.
- Normalize and log. Run the normalization checklist: one-offs (symmetric), leases, R&D, depreciation lives, LIFO, by-nature/by-function mapping. Every adjustment gets a log line of item, direction, source note.
- Run the five comparisons. First the time series over 5 to 10 years: level, trend, volatility, inflections. Classify each inflection as economics/perimeter/accounting. Then 3 to 5 true peers, anchored on the median, ranked with a gap. Then vertical plus horizontal common-size to locate the gaps. Then the hurdle test on the returns rows, on a like-for-like tax basis. Last, a sector-norm sanity check on every row.
- Segment before verdict. Rebuild segment margins and returns. Separate rate from mix. Treat unallocated items explicitly. Refuse to average unlike things.
- Write the reading. Conclusion first. Every claim carries a number, and every number carries a source. Decompose the big gaps into accounting/definition/economics, flag one anomaly, and end with the single variant question you'd research next.
- File it. The table and reading go into the company file, and the normalization log goes with them, because your future self won't remember why row 6 was adjusted. Recurring norms feed your sector sheets.