Financial analysis
From Free net encyclopedia
Financial analysis is the analysis of the accounts and the economic prospects of a firm.
Contents |
[edit]
Goals
Such an analysis has the objective to assess the firm's:
- performance, for the management to improve it,
- solvency, so as for a bank or a supplier to grant a credit,
- potential value to decide an investment or divestment. Then it is called fundamental analysis and is linked to business valuation and stock valuation
[edit]
Methods
Financial analysts, among other tasks, use to compare financial ratios (of solvency, profitability, growth...)
- between several periods (the last 5 years for example)
- and between similar firms.
Those ratios are calculated by dividing a (group of) account balance(s), taken from the balance sheet and / or the income statement, by another, for example :
- Net profit / equity = return on equity
- Gross profit / balance sheet total = return on assets
- Stock price / earnings per share = P/E-ratio
[edit]
See also
[edit]