Sections of Financial Analysis

Traditionally, financial analysis involves examining financial statements (balance sheet, income statement, cash flow statement), evaluating investment projects, and developing business financing strategies.

Financial analysis helps a company address several critical business issues. For instance, it can diagnose the company’s current condition. In this regard, financial analysis helps verify the company’s ability to meet its obligations and determine its profitability.

Financial analysis can also identify inefficient areas of activity, assess debt burdens, or pinpoint liquidity shortages. This enables the company to make informed decisions to resolve these issues.

Furthermore, based on financial analysis, companies can forecast future revenue, costs, and profits.

Financial analysis comprises several sections, each focusing on specific aspects of a company’s financial health.

The analysis of solvency and financial stability helps determine how stable a company will be in the long run and whether it will be able to meet its obligations.

Turnover analysis helps evaluate how quickly assets are utilized and investments are recouped. Traditionally, this involves calculating asset turnover, inventory turnover, as well as the collection periods for accounts receivable and accounts payable.

Cash flow analysis helps track how money comes into and is used by the company. The assessment is carried out in three areas: operating activities, investing activities, and financing activities.

Liquidity analysis evaluates the company’s ability to meet its short-term obligations. This involves examining current assets and liabilities and their relationship, as well as calculating the current, quick, and absolute liquidity ratios.

Profitability analysis assesses the company’s ability to generate profits. It is carried out using key indicators such as return on sales, return on assets, and return on equity.

Analyzing the structure of assets and liabilities reveals how a company’s resources and funding sources are distributed. For example, this analysis identifies the proportion of non-current and current assets, as well as the share of short-term and long-term liabilities.

Break-even analysis determines the minimum sales volume at which the company neither incurs losses nor generates profits. Calculating this requires information on fixed and variable costs.

Within financial analysis, various indicators may be calculated. It is important, however, to use the right tools that ensure accurate and effective analysis, such as, for example, Spreadym.