A company's financial analysis is used to assess the financial situation of the business - such as profitability and stability - in order to make strategic decisions oriented towards objectives.
According to a Guidant study , only 78% of small businesses are profitable , while 33% constantly struggle with cash flow.
An essential element to ensure the profitability of a company and, therefore, its permanence in the market, is the constant performance of financial analyses. These reveal the economic situation of the company and help to take the necessary measures to improve commercial management.
Furthermore, according to Growth Force , only 50% of small and medium-sized businesses survive the first 5 years , as they face a variety of problems, such as poor ability to make financial decisions.
That is why, in this post we will tell you what the financial analysis of a company is for.
Discover:
Why is financial analysis important in a company?
Types of financial analysis;
Financial analysis tools.
Why is financial analysis important in a company?
As you saw, the financial analysis is a report prepared by the accounting team on the company's performance in economic terms.
The benefits of performing financial analysis are:
Knowing the financial health of a company;
Prevent possible crises or even bankruptcy;
Know the company's solvency and liquidity levels;
Facilitate the entry of investments by demonstrating the profitability of the business;
Reach break-even point faster, in case of new businesses.
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Types of financial analysis
The types of financial analysis are:
Vertical analysis
It is used to evaluate the financial statements of a company for a given period, such as the balance sheet or profit and loss statement.
Horizontal analysis
Horizontal analysis is a comparison of all the results obtained with the previous period. It is essential to understand the growth, stagnation or slowdown of a company.
Trend analysis
This is a comparison of financial statements with previous periods to determine the behavior of the indicators over time.
Coefficient analysis
This type of analysis consists of the correlation of different data to identify relationships between indicators.
Corporate financial analysis is a comparison of different indicators. For example, the company's performance against the average of the industry to which it belongs.
Factor financial analysis
This is an in-depth report on the india numbers list financial situation, which includes the trend behavior of the company and the market in general.
Sales budgets allow you to define plans and strategies with a broad view of the resources you have and those you need. Learn all about Sales Budget: 8 Models to Organize Finances .
Financial analysis tools
The tools you should take into account to perform a financial analysis are:
Cash flow
Cash flow is essential to control each inflow and outflow of money and thus, to anticipate the fixed expenses to be incurred and to calculate the liquidity that the company has at all times.
Balance sheet