Financial Analysis

 The assessment of a business to deal with planning, budgeting, monitoring and adjusting financial strategies of an organization is known as financial analysis. The viability, stability and profitability of a business are calculated using financial analysis. Financial statements made by financial analysts help in making business decisions. Financial analysis helps in deciding the investing or lending capital. It helps in the issue of stocks or negotiates for a bank loan to increase its working capital. Financial analysts determine the firm’s profitability, solvency, liquidity and stability of the firm. Profitability is the ability of a firm to earn income and sustain growth in both short term and long term. Solvency is the ability of a firm to pay its obligation to creditors and other third parties in long term. Liquidity is the ability of a firm to maintain positive cash flow. The ability of a business firm to remain in the business in long run without loss is known as stability.

Financial Analyst

A person who performs financial analysis for external or internal clients as a core part of the job is a financial analyst. Financial analysts are also known as securities analyst, research analyst, equity analyst or investment analyst. He collects information, assemble spreadsheets, write reports and review all non-legal pertinent information about prospective deals. He examines the deal very carefully and then prepare plans on financial analysis. To be a financial analyst, one needs to have vigilant awareness of financial trends. He has to do financial analysis for the financial health of company. Financial analysts are required in buy side firms, sell side firms and investment banks.

Financial Statement

 A record of financial activities of an entity is known as financial statement or financial report or financial analysis. Statement of financial position which is also known as balance sheet gives information about assets, liabilities and ownership equity at a given point of time. Statement of comprehensive income which is also known as profit and loss statement gives details about the income of the entity along with its profit and other expenses. The Profit and Loss account (P&L) is essential for determining the operation of the business. The changes in the equity of the company throughout the period are explained by the statements of change in equity. Financial reports are essential for making collective bargaining agreements with management. Vendors require financial statements to calculate the worth of the business. To establish the accuracy of taxes financial institutions use financial statements.

Questions:

• Define financial analysis?
• What is a financial statement?