The financial analysis is one of the major concepts of corporate finance. The concept is used to carryout assessment of business activities. The assessment considers the factors like amount of profit that is generated by the business, the stability of the particular business and many more.
Again the ability of the company to offer good returns to the investors and maintain the cash flow is also considered by the professionals. Financial analysis is also used for evaluating several projects designed by the corporations or the governments. The process of financial analysis is done by the professionals of the field of finance.
For the purpose, professionals use all the available information provided by the financial balance sheets and several other reports. Once the assessment is over, the reports prepared by the professionals are provided to the management of the corporations.
Several decisions related to the expansion or investment and so on, are based on these reports. The management of the corporations can also decide to discontinue the projects if the financial analysis report is not satisfactory. At the same time, issuing securities for generating funds is also related to the financial analysis reports.
For the purpose of analyzing the performance of a corporation, business or project, the concept of financial analysis takes into account the past, present and future performances of the particular company or project. The future performance is assumed through comparing the past and present situation of the company. This is not a safe way of assuming the future but still it is in use.
On the other hand, the performance of the particular firm is compared with a number of other firms. Again, a number of ratios are used for the purpose of assessment. In every types of business, the effects of seasonal factors are unavoidable. So there may be a period when the earning of the particular company is low. Financial analysis of the company is done by taking the average income of the business. At the same time, this analysis never considers important factors like investors
Last Updated on : 27th June 2013