Abstract
The research paper that we have worked examine the significance of financial statement analysis in enhancing portfolio optimization strategies accros the countires of West Balkan stock exchanges, exatly in Albania, Serbia, North Macedonia, Bosnia and Herzegovine and Montenegro. The research paper aims to see how accounting baset indicators derived from financial statements report, such ROA and ROE – profitability, current ratio , quick ratio – liquidity, dept to euqity – solvency and asset turnover, inventory turnover – efficency ratios, contribute to raising more resilient and better performin investment portfolios. By putting this indicators into Modern Portfolio Theory ( MPT ) frameworks, th research paper seeks to bridge the gap between traditional quantitative optimization methods and fundamental financial statement analysis. The empirical analysis is based on data collected from 2015 to 2024, covering publicly listed companies across the region. Portfolios are constructed using both market based data (returns, volatility, and covariance) and accounting-based data (financial ratios and firm fundamentals). Advanced econometric models and optimization techniques, including mean-variance optimization and multi-factor regression, are applied to evaluate portfolio performance under different scenarios, will use Markovitz ( MPT model ) and CAPM. The results demonstrate that portfolios incorporating financial statement indicators achieve superior risk-adjusted returns, as reflected by higher Sharpe, Treynor, and Sortino ratios, compared to portfolios formed purely on historical market data. Furthermore, the study highlights that in emerging and less efficient markets like those of the Western Balkans, financial statement analysis provides an additional layer of informational advantage, compensating for limited liquidity, market depth, and data transparency. These findings emphasize the importance of integrating fundamental financial analysis into investment strategies for improved decision- making and portfolio diversification. The paper contributes to both academic literature and practical investment strategies by demonstrating how accounting-based insights enhance the effectiveness of portfolio optimization in transitional and developing financial markets.