FINANCIAL ANALYSIS

What is a Financial Analysis ?

Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finances) often assess the following elements of a business:

1. PROFITABILITY.

Its ability to earn income and sustain growth in both the short- and long-term. A Company’s degree of profitability is usually based on the Income Statement, which reports on the company’s results of operations.

2. SOLVENCY.

Its ability to pay its obligation to creditors and third parties in the long-term.

3. LIQUIDITY.

Its ability to maintain positive cash flow, while satisfying immediate obligations.

4. STABILITY.

The Company’s ability to remain in business in the long-run.

It is performed by preparing reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making vital business decisions to:

  • Continue or discontinue its main operation or part of its business;
  • Make or purchase certain materials in use when they manufacture of their product or should they contract it out;
  • Acquire or rent/lease certain machinery and equipment for use in the production of its goods or provisions of their services;
  • Issue company stocks or negotiate for a bank loan to increase its working capital;
  • Make decisions regarding investing or lending out capital;
  • Make other decisions that allow management to make an informed selection on various alternatives in the conduct of its business and growth.

 

ACCOUNTING / FINANCIAL RATIOS.

Accounting or financial ratios used by banks/investors require detailed examination to test their validity and assess their value. The main types of ratios that can be used by banks and investors are:-

Balance Sheet Ratios

  • asset ratio;
  • liability ratio;
  • debtors / creditors ratio;
  • current ratio;
  • liquid ratio.

 

Profit & Loss Account Ratios

  • rate of gross profit;
  • rate of net profit;
  • expenditure / sales ratio.

 

For a full Financial Analysis of your business complete the form Below and a consultant will contact you:

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