Wednesday 28 November 2018

What is financial Analysis

Financial analysis is the process of evaluating businesses, projects, budgets and other finance-related companies to determine their performance and competence. Generally, financial analysis is use for analysis that an entity is profitable to ensure stable, solvent, liquid or monetary investment.

Financial analysis

The process research of financial report and its elemental which aims to evaluate and predict the financial condition of the company and also evaluate the results the company has achieve in the past and is now refer  to as analysis financial. In addition, it can also be refer to as a relationship between one figures in the financial statements with the other numbers have meaning to explain the change of direction on a phenomenon.

The figures in the financial statements will have little meaning when seen in its own, but with the financial analysis it will be easier in interpret it. Here is some role analysis of financial statements, among other things:

The benefits of financial analysis

Financial analysis means so much so that the company's cash flow process can run smoothly. Following the various benefits of financial analysis for a company.

  • To find out the relationship between a company with other companies, both on a financial statement or between financial statements. So if there is a weakness in one or more of the company financial statements, then it would have taken an action to fix it.

  • To find out the company's financial position at a given period. Like property, liability and capital or business results that have been achieve in some periods.

  • Find out some of the weaknesses that can be a lack of a company.

  • Know some of the powers of a company.

  • To know the repair steps that need to be made, relating to the company's financial position was at the moment.

  • Can provide a wider information and deeper than on the information contain in the financial statements.

  • It can dig some information that does not appear in visible from a financial report or who is behind these financial reports.

  • You can find out some mistakes contain in the financial statements as well as be able to disassemble the thing has consistently in conjunction with an forum financial reports related to the information which can be obtain from outside the company.

  • May determine a company's ranking according to certain criteria that are already known in the business world.

  • Will you compare the situation of the company with other companies in the previous period or with the normal industry standard or ideal standard.

  • Can understand the situation and also the financial condition, business results and financial structure in a company.

  • Able to predict the potential that may be conduct on the company's future.

  • You can provide a desire information by decision-makers.

  • To perform an assessment of management performance in the future, whether to do refresher or not.

  • It may be use as a comparison the company one with similar companies about the results they have achieve.

Methods of financial Ratio Analysis

In analyzing the financial statements there are some methods that can be use as a benchmark to assess the financial position of the company include:

  • Analysis of Growth.

    Technical analysis comply by comparing the increase or decrease in financial reporting position at a certain period with other periods of each post contain in the financial statements using the value percentage.

  • Data present can by comparing the increase or decrease in each post financial statements last month by month now, or period of the Year to Date to the same period of last year to now.

  • Trend and index

    Engineering analysis similar to the analysis method of growth but the comparison figures are financial statements a certain period which index and select as the base year. This trend is very useful technique to project financial reports in the future by using historical data.

  • Ratio analysis

    Technical analysis by comparing each post financial reports that are relevant or significant data.

The purpose of financial analysis

Basically any management activities have the purpose to get something. So did the financial analysis, the following range of the purpose of the financial analysis that must be carry out by your company.

  • Screening – the analysis done by looking at the financial analysis for the purpose of selecting an investment or merger possibilities

  • Forecasting – Analysis is use to predict a company's financial condition in the future.

  • Diagnosis – Analysis aims to look at the possibility of some of the problems that occur in operations management, financial or other issues.

  • Evaluation – the analysis conduct to assess a management, operational achievements and also efficiency. So that it can evaluate the performance results at the company.

  • Understanding – by conducting a financial analysis of raw information. Read financial reports will be wider and deeper as well. So it can be more understandable.

That's some of the role of financial analysis in an enterprise. To be a company that is growing, a leader must be able to regulate their financial reports with both. So that's not the case things that can harm the company. In addition, in order to avoid irregularities in the finances of the company. Then needs to do analysis on the financial statements.


It is done to fix the financial irregularities that have occur. So the company they lead can run well and thriving. So an article about the analysis of financial statements, hopefully. This article can be useful for the leaders and aspiring leaders in organizing their financial companies.

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