The primary purpose of financial analysis is to provide a collection of priority (most representative) indices that portray the company’s financial situation.
Some of these indices are as follows:
– asset and liability structure changes; – account receivable dynamics; – profit and loss size, level of return on assets, own capital, and sales; – asset and own capital turnover changes; – the presence of flowing capital at the beginning and end of the research period, and so on.
The CEOs may be interested in both the company’s present financial status and its near-term financial prospects. Although financial analysis cannot be compared to due diligence, it may be useful in determining the company’s business strategy, as well as the initial business plan and marketing plan.
The initial basis for financial analysis is bookkeeping and accounting data, which assists in the renewal of all vital components of industrial and financial activity, as well as all completed operations, in a generalized form, which is necessary for aggregate analyst degree.
There are various fundamental financial analysis methods:
– reading financial books; – horizontal and vertical analysis; – trend analysis; – comparative (spatial) analysis; – factorial analysis; – financial coefficients method
Gaining a fundamental grasp of a company’s financial status based on financial statement balance data, timetables, and profit and loss analysis is part of reading book assets. This is an important phase in financial analysis when the analyst gets to know the research object.
Horizontal (time) analysis is the comparison of book accounting indexes with features from previous periods.
Vertical (structural) analysis is used to identify the relative importance of different balancing components in the overall final index, and then to compare the findings to data from previous periods.
For trend analysis, the relative deviations of the accounting parameters from the baseline period’s level are determined for various periods (quarters, years). Trends contribute in the formulation of a project analysis.
Comparative (spatial) analysis is based on an internal economic comparison of a company’s single indices with the same indices of competitors’ companies.
Factorial analysis is the process of examining the influence of certain variables (reasons) on the regulative index utilizing quantitative and statistical research tools.
Two ways for determining financial coefficients are the calculation of book accounting data ratios and the detection of index correlations.