What is financial analysis?

Financial analysis is the process of evaluating an organization's financial information, such as income statements, balance sheets, and cash flow statements, to make informed decisions about its financial health and performance. This analysis helps stakeholders, including investors, managers, and creditors, to understand the financial viability and profitability of a business.

Types of Financial Analysis

There are several types of financial analysis, including:

• Horizontal analysis: Comparing financial data over a period of time to identify trends and patterns.
• Vertical analysis: Analyzing financial data within a single period to assess proportions and relationships between different accounts.
• Ratio analysis: Calculating and interpreting financial ratios to measure a company's liquidity, profitability, efficiency, and solvency.

Importance of Financial Analysis

Financial analysis is crucial for:

• Assessing a company's financial performance and potential for growth.
• Identifying areas of improvement and making strategic decisions.
• Evaluating investment opportunities and managing risks.
• Communicating financial information to stakeholders.

Overall, financial analysis plays a vital role in helping organizations make informed decisions and achieve long-term financial success.