Financial analysis of the company

Financial analysis is the evaluation of the main indicators of the financial position and financial results of the company to reach business decisions. During the analysis the quantitative calculations of various indicators, ratios and factors, as well as their qualitative assessment and description, comparison with similar indicators of other enterprises are carried out.

Financial analysis includes analysis of the assets and liabilities of the company, its business solvency, liquidity, financial results and financial stability, analysis of asset turnover (business activity of the enterprise). Financial analysis can be used to assess a company's probability of bankruptcy.

The basis of financial analysis is the calculation of special indicators, characterizing one or another aspect of the financial and economic activities of the organization. The source for calculating financial indicators is the financial statements of the company. The main financial statements used for analysis are the balance sheet, income statement, cash flow statement, and other reports such as statement of retained earnings or/and statement of shareholders' equity.

Financial indicators allow you to evaluate the effectiveness of the company, most of them has recommended values, which may vary depending on the industry. According to the results, you can determine the strengths and weaknesses of your business and, based on available data, make strategic decisions for the company's successful development.

There are a lot of different financial indicators. Let’s cover the main financial ratios, its interpretation and make some calculations. We can examine some important financial rations and illustrate their meaning through an example. Our calculations will be based on the data of the hypothetical company X. Let’s have a look.