Screening Equity Investments
Analysts also use financial statement analysis to screen equity investments. For example, in a mutual fund, the portfolio manager is required to pick stocks for its portfolio from thousands of stocks. Depending on the objective of the fund, such as growth fund, value fund, or balanced fund, the portfolio manager will screen stocks using various ratios and accounting numbers. He may combine several criteria to screen stocks, for example, he may be looking at only large cap companies, having low P/E ratio. Using such screening process the portfolio manager will be able to select a small number of stocks which they can further analyse for possible investment.