Financial Analysis

Financial Analysis Performing financial analysis is not an easy task because it requires a deep understanding of the industry, income statement, state of financial position, and cashflow statement. When starting financial analysis, opening the company’s Annual Report maybe a daunting prospect. However, remain calm because there are only 4 main parts you need to be focused on. Firstly, you read and understand the CEO’s business strategy and company highlights. Choose a company that interests you as this makes it more interesting. 

Secondly, you flick to the income statement to see its profitability. If profit has declined over the past few years, it must be because sales has decreased or operating costs have risen, or both. To get a better understanding of each figure, just refer to the notes in the account. Thirdly, take a look at the statement of financial position. Has any of the liabilities increased? Are assets going up or down? Have they been amortised or depreciated sensibly? Fourthly, analyse the cashflow statement by seeing if debtor days have risen or decreased. Calculating ratios is easy but it needs to be interpreted using the annual report and what is occurring in the industry. If you require further assistance in financial analysis, we are happy to assist you.

Categories: Academic

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