When you analyze something, it means that you conduct a detailed examination of the elements of that something which will become the basis for a discussion in a group or company, or a basis for the interpretation of data. There are many different forms and types of analysis and all are done for a specific purpose. An analysis can be conducted to find out strengths and weaknesses of something, or to point out the status of one’s finances either in businesses or for personal knowledge.
In this article, we will discuss about company financial analysis, what it is, its uses and the different types of analysis methods being used today. We have also included financial analysis sample template that can be used as reference as we discuss about this interesting and useful topic.
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What Is a Financial Analysis?
Companies need to be on top of their finances in order to keep their income and spending on track. A company financial analysis is conducted to ensure that the cash flow of the company is continuous and that its earnings is growing. A financial analysis is the process where financial aspects of the company and other related activities are evaluated, such as the allotted budget, projects, business processes. It is done to determine the companies performance as well as their suitability in the business. A financial analysis is often done to determine whether a company is profitable enough to invest on. Financial statements, cash flow statements and balance sheets are the documents being looked into in a financial analysis.
Uses of a Company Financial Analysis
A company financial analysis is useful in pretty much a lot of ways. The following is a list of some of its uses.
- One of the uses of a financial analysis is to ascertain or determine the value of the business, its stocks and its other related assets.
- It is used to determine how a particular businesses normally obtains cash and how they use the cash they had obtained.
- Conducting a financial analysis in a company allows them to review their finances as part of their annual review of the business, where the financial advisers and managers can take pat or participate.
- A financial analysis is used to help set the company’s financial policy and also help them identify which companies or projects would be best for them to invest on and that will guarantee monetary investment returns.
- A financial analysis is also used to build long-term plans for the business’ activities. Identification of the financial health or condition of a business is is done through a financial analysis which allows for the long-term plans for the business to be created and implemented.
What Are the Types of Financial Analysis?
There are five main types of financial analysis and they are Horizontal analysis, Vertical analysis, short term analysis, multi-company comparison analysis, and industry comparison analysis. Let us further take a look at each of them below.
This type of financial analysis is also known as a trend analysis because it is a useful tool that evaluates the trend situations. A horizontal analysis is a financial analysis technique that makes use of financial statements to show the changes the amounts of items that are shown in a financial statement over a period of time. The intention of conducting this type of financial analysis is so that increases and declines in the financial data can be identified and used as a basis to examine financial results.
In a vertical analysis, each line item of a statement is referred to as a percentage of another item in the financial statement that is used to view or identify any relative changes to these items over a period of time. A vertical analysis is referred to as the proportional analysis of the different expenses listed in a financial statement. It can also be used to analyze balance sheets. The proportions in a vertical analysis need to be consistent over a period of time or over a five-year period.
In accounting, short-term is referred to as something that one holds or manages for a period of less than one year. So a short-term financial analysis is done for analyzing finances covering a short period of time. It includes a detailed review of an entity’s working capital, the calculation of the turnover rates for their accounts payable, accounts receivables and inventory.
Multi-Company Comparison Analysis
The intention of this type of financial analysis is to determine the and compare the financial strengths and weaknesses of two companies within the same industry using their financial statements as the basis. The financial ratio of each company is calculated and then compared to come up with specific results.
Industry Comparison Analysis
This type of financial analysis is similar to that of a multi-company comparison analysis, except that the comparison is between the financial ratio of an entire industry and that of a specific business. The aim of this type of the analysis is to determine if there would be any unusual results to how they do business compared to their average method of doing it.
It is important to know the five types of analysis to help you determine which type to use for a specific purpose. You may also check out other related articles with useful analysis samples and templates, like Sample Business Analysis Reports, Professional SWOT Analysis Templates, and Business Impact Analysis Samples.
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Advantages of Company Financial Analysis Templates
Templates are the easiest and the most convenient ways on getting things done. This pretty much tells us one useful things about company financial analysis templates. To know more about financial analysis templates, we have here a list of its advantages that you need to know.
- Financial analysis templates contains a complete set of information that ensures your analysis is conducted in an organized manner and allows you to examine and gather the exact type of information that you should be working on.
- The templates are also ready made for your convenience and are easy to find online so it will definitely be easy for you to find one just about anywhere online.
- They are also created in easy to use and easy to edit files so that you won’t have trouble or experience any difficulty when using it.
- Using company financial analysis templates also allows its users to save time and produce a financial analysis report that is not only reliable, but also neat and professional looking.
- There are different varieties of financial analysis templates available, each focusing on a different aspect of a companies finances.
- The template can also be used as reference when one decides to make their own financial analysis template based on the companies desired criteria and preferences.
Don’t you just find a financial analysis templates useful? If you do, then you can find more in different varieties on our website. Some of the articles that you will surely find interesting are Workforce Analysis, Marketing SWOT Analysis Samples & Templates, and Business Case Analysis Samples.
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