How to Perform a Financial Analysis

In order to succeed in business, companies must monitor their financial health and assess the effectiveness of their strategies on an ongoing basis.

Financial analysis is one of the techniques accounting and finance professionals use to evaluate these important aspects of business success.

What exactly is a financial analysis, and how is it done? Find out in this article.

What is a financial analysis?

A financial analysis is one way to evaluate a company’s financial health. A variety of methods, procedures and tools are used to assess aspects of the company’s financial situation and reach a conclusion.

A financial analysis is usually done before purchasing a company or acquiring new investors, but it can also be a useful tool for getting the information you need to adjust your business strategy. The analysis generally focuses on a company’s profitability, solvency and liquidity.

How to perform a financial analysis

Unsurprisingly, financial analyses are performed by financial analysts. These accounting and finance professionals need a profound understanding of the current market and the issues facing the company they work for.

There are two main steps to performing an in-depth financial analysis: the economic assessment and the financial assessment. Let’s take a look at these steps in more detail.

Step 1: Economic assessment

The economic assessment involves evaluating the business sector the company operates in. The analyst will need to get to know the market and the company’s financial growth strategy. This will enable them to determine how the company compares to its main competitors.

The economic assessment includes a market study and an analysis of the company’s production and distribution.

Step 2: Financial assessment

Then, the analyst proceeds with the financial assessment, which focuses on the accounting aspect of the company. They look at the company’s accounting methods and rules, profit margin, turnover and break-even point to determine the state of its finances.

With this information, the analyst can evaluate the company’s financial structure and assets (financing methods, cash flow, fixed assets, etc.).

Become a financial analyst with the help of Fed Finance

Performing a financial analysis requires extensive knowledge of accounting methods and corporate finance. The person performing the analysis must also be familiar with the issues facing the company. They then conduct an economic and financial assessment to determine the state of the company’s finances.

But before you can perform a financial analysis, you’ll need to become a financial analyst! If you are looking for a job as a financial analyst, the consultants at Fed Finance can help.