Financial Analysis

Financial analysis is the process of assessing the performance and suitability of businesses, projects, budgets, and other financial-related transactions. Financial analysis is frequently used to determine whether a company is solid, solvent, liquid, or profitable enough to justify a financial investment.

Financial analysis, if done internally, can assist fund managers in making future company decisions or looking back at historical trends for prior accomplishments.

Financial research, when done externally, can assist investors in selecting the finest investment possibilities. The two primary categories of financial analysis are fundamental analysis and technical analysis.

Ratios and financial statement information are used in fundamental analysis to calculate a security’s intrinsic value. Technical analysis concentrates on trends in value over time because it makes the assumption that a security’s value is already determined by its price.

Economic trends are evaluated through financial analysis, and financial rules are established, long-term company activity plans are developed, and potential investment opportunities are identified. Combining financial information with numerical data is how this is done. An income statement, balance sheet, and cash flow statement of a firm will all be carefully examined by a financial analyst. Financial analysis can be done in both corporate and investment finance situations.

One of the most common techniques for analyzing financial data is to calculate ratios from the information in the financial statements to compare against those of other companies or against the company’s own historical performance.