Introduction
Financial analysis is a procedure which is used to evaluate businesses, budgets, projects, and other transactions related to finance for determining their suitability and performance. Mostly, it is a process which is utilised to inspect if an entity is solvent, stable, profitable, or liquid enough to justify a monetary investment. Financial analysis is utilised to assess economic trends, set a financial policy, develop long-term plans for business-related activities, and identify companies or projects for investment.
What is Financial Analysis?
A financial analyst will inspect the financial statements of a company thoroughly. Financial analysis can be executed in corporate finance as well as investment finance settings. One of the ways to examine financial data is to compute ratios via the data enclosed in the financial statements to compare versus those of other firms or against the firms own historical performance.
Financial analysis is advantageous because:
- When financial analysis is conducted internally, it could help managers in making futuristic business decisions or in reviewing historical trends.
- When financial analysis is conducted externally, it could help investors in choosing the best feasible investment opportunities.
- There are two main kinds of financial analysis-technical analysis and fundamental analysis.
- Fundamental analysis employs financial statement data and ratios for determining the intrinsic value of a security.
