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1. A single year's set of financial statements--balance sheet, income statement, statement of retained earnings, and, most important, the statement of cash flows--don't mean much. Any serious analysis will require several years of such statements. In my line of work, we want to see at least five years, and more if the company's operating cycle is longer than that (think pharmaceuticals and the FDA).
2. At least as important is to compare whatever company is being analyzed with industry benchmarks or groups of similar public companies. Disparities in size and expected growth have a huge impact on valuation multiples. Adjusting multiples for those differences is a non-trivial and complicated undertaking.
3. As Tim and Jim noted, the structure, ratios, and margins embedded in financial statements will vary by industry, management philosophy about capital structures, growth rate, and sometimes by strategic group. One-size-fits-all works about as well here as it does in haberdashery and healthcare.
4. Never confuse accounting numbers with "math." Except for balances in checking and savings accounts, every number on a financial statement is an estimate. The idea of mathematical precision is a mirage in financial reporting. It's not happening, and it'll never happen.
5. Unfortunately, financial reporting has become so complicated these days that the footnotes to the financial statements are at least as important as the statements themselves. The footnotes contain essential disclosures about the assumptions underlying the financials. Part of the analyst's job is to assess the reasonableness of those assumptions. Are they aggressive? Conservative? Muddled? Change the assumptions (think depreciation, just for starters), and the numbers on those financial statements will darned sure change, sometimes significantly. As one who was a controller and CFO before he enrolled in a Ph.D. program in strategic management in 1983, I can tell you that it is critical for the analyst to understand the implications of the underlying accounting assumptions. Few students are capable of that where publicly held companies are concerned simply because of the complexity of the footnotes.
6. If you choose a smaller, simpler non-public company, well, there are significant downsides there, too. For starters, few private companies' financial statements are audited. Audits are expensive, and most private firms are not required to have audits. So there is a quality-of-information issue right from the start, In addition, whereas public-company executives have, at least in theory, incentives to maximize profits, most private-company owners I've been around for over two decades would much rather minimize taxes. That leads them to engage in transactions that, though legal, a profit-maximizing company would likely not be a party to. Private companies are not required to disclose their performance, except to the IRS and, on occasion, a lender or regulator; publics must disclose quarterly. Thanks to Sarbanes-Oxley, most public companies are under strict mandates where governance is concerned; in many private firms, the annual shareholders' meeting may take place in the car on a Saturday morning en route to the first tee. Public companies have options and restricted stock with which to attract talented managers; private companies can offer options, but those seldom have the potential for huge payoffs unless the company goes public later. Finally, a sometimes-shallow gene pool in a private firm often trumps the knowledge and experience of non-family members.

Good luck.

Warren Miller
Beckmill Research, LLC
Lexington, Virginia
USA

| Warren D. Miller, CFA, ASA | Beckmill Research, LLC | Drawer 1158 | Lexington, VA 24450
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| Value Maps: Valuation Tools That Unlock Business Wealth | (John Wiley & Sons, 2010)