Financial analysis is an indispensable attribute of financial management, the basis for making management decisions. It is a process of researching the financial performance of a company to determine steps to increase its market value and ensure development prospects.
Instructions
Step 1
Financial analysis is widely used by the company's management. It allows you to assess how stable the company is, as well as to identify possible risks of bankruptcy. Financial analysis is also widespread in the practice of auditors and appraisers. Banks also use methods of financial analysis when deciding on a loan. Accountants use financial analysis when preparing an explanatory note for the annual accounts.
Step 2
There are six key methods that are used in financial analysis. These include horizontal and vertical analysis, trend analysis, analysis of relative indicators, comparative and factor analysis. In the horizontal analysis, each indicator is compared with the previous period, in the vertical analysis, the share of each item (income or expense) in the overall structure is determined. The factors that influenced the overall result are also analyzed.
Step 3
An integral part is trend analysis, which is performed for the purpose of analyzing trends. For example, an increase in the share in sales of one product against the background of a reduction in another. All financial indicators are compared with each other to determine correlations. Benchmarking compares the company's performance against competitor data as well as industry averages. Without such a comparison, data on competitors is not informative.
Step 4
In the course of financial analysis, quantitative and qualitative methods are used. They include an analysis of the company's assets and liabilities, its liquidity, financial stability, solvency, and asset turnover.
Step 5
Financial analysis can be classified on various grounds. From the user's point of view, a distinction is made between internal, which is carried out by the company's own specialists, and external financial analysis. In the latter case, it can be done by appraisers or auditors. In the direction of analysis, retrospective and prospective analysis are distinguished. In retrospective, past financial performance is analyzed. In a forward-looking analysis, financial plans and forecasts are determined. According to the degree of research depth, express analysis and detailed financial analysis are distinguished.
Step 6
Financial analysis can be directed towards various indicators. In this case, a distinction is made between the analysis of financial statements, which is carried out on the basis of financial statements; investment analysis dedicated to the study of investments and capital investments; technical analysis, in the field of view of which the dynamics of the company's securities falls.
