What is the financial analysis?
Financial analysis is the process of evaluating businesses, projects, and budgets from a financial standpoint; to ascertain their performance and suitability, rather than to extract semantic data that aids in presenting a clear picture of the financial situation and in aiding in the making of sound decisions.
Whether it is a financial analysis of a company with the goal of evaluating performance, conducting control, and creating plans, or it is an investment opportunities, or it is for the state and its government agencies, or any other entity, at the end of the day it is a very important tool for assisting decision makers in achieving better and more profitable financial performance.
Financial analysis is essential in today's information-and investment-driven world. Sine it helps organizations and people succeed financially and administratively, and because the value of financial analysis comes in its capacity to:
Analyze the company's liquidity ratios to determine its financial efficiency.
calculating the amount and financing plans based on the company's financial efficiency.
Using metrics for profitability ratios to accurately assess the effectiveness of investments.
Assisting with future planning to build on strengths and address deficiencies.
Utilize debt ratio indicators to assess the company's level of investment risk.
Using activity ratio indicators to provide precise data on the effectiveness of relevant departments, such as finance and sales.
Numerous goals exist for financial analysis that change depending on the variety of goals being pursued, and one of these goals is quite crucial:
Providing the data required to make future plans.
Providing clear sign of the effectiveness of the activity the organization is engaged in.
Spotting financial issues and bad behavior to change the course of events.
Relying on the institution's actual financial situation and the degree of its financial efficiency.
Highlight strengths to build on and weaknesses to overcome.
Support in locating investment opportunities in the business market.
Assisting senior management and the financial department in developing their short-and long-term goals.
Determine the degree to which senior management and financial management were successful in presenting a sound financial position.
Evaluating the institution's financial situation in light of its capacity for borrowing money and making loan repayments.
Depending on the objectives of the study, the tools at hand, the approach each analyst employs, and the shops he works on, the processes of financial analysis may very may vary from analyst to analyst. However, broad frameworks can be established to make the phases of financial analysis more clear, as seen in the following:
Before beginning the analysis, it is essential to specify the goal of the financial analysis in order to focus on the financial facts pertinent to that goal and to omit everything that does not further that goal. Having a clear purpose also makes it easier to select the best resources and methods for analysis and to produce findings that will benefit both the decision-maker and the recipient.
We must first conduct a financial analysis of the project's financial accounts in order to invest money in it without running the danger of losing it, as doing so assures that you minimize risk and anticipate a satisfactory return. however, business rely on the findings of financial analysis when making decisions
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Financial analysis's significance:
Financial analysis's goals:
Financial analysis procedures:
Establish the analysis objectives.
Select the time period that will be covered by the analysis.
It is necessary to set a time restriction for financial period in order to complete the analysis within its parameters.it is preferable to include more than one financial period in the financial analysis in order to obtain reliable reflect the financial condition.
Gathering the required financial data and information from its sources.
Finding the financial data required to conduct the analysis, such as financial statements, inventory movement and expenses, etc., represents one of the most crucial steps in financial analysis. This can provide the financial analyst with additional information that aids in producing accurate results.
Establish the process and resources for financial analysis.
The financial analysis approach and the best tools for the analysis are chosen after establishing the purpose, the time frame, and gathering the relevant data.
Carry out the analysis using the tools and methods detailed.
The most crucial step is carrying out the analysis by processing the gathered financial data in accordance with the established methods and tools. it is at this point that one financial analyst differs from another based on their skill and experience because it takes ingenuity to transform the financial statements into data and indicators that can be used to assess their financial situation and make decisions.
Getting outcomes and offering suggestions.
The financial analyst can produce clear and accurate results that explain the financial situation after properly completing the earlier stages. Based on the results, recommendations are then made that the analyst believes are worthwhile of consideration in order to address the issues raised before the analysis and achieve his objectives.