Oana Labes, MBA, CPA on LinkedIn: The Financial Analysis Checklist. Because financial analysis is not… | 37 comments (2024)

Good reference for comprehensive analysis .

Great checklist covering almost every area for a sound financial analyst.

a comprehensive checklist to consider

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What is financial analysis?Financial analysis is the processof analyzing a company's financial datato be able to get an idea of the company's financial healthand also to make recommendationsfor how to improve that financial health going forward. There are several types of financial analysesthat you may hear about,and the specific one you may work with often dependson the industry of your target company,the reason for your analysis,and even the current state of the financial market. The types of financial analyses we'll be talking about todayare vertical, horizontal, leverage, growth rates,profitability, liquidity, cash flow, valuation,and variance analyses. 1-Vertical analysis involves taking major line itemsof an income statement and dividing them by revenue,then expressing them as percentages.These percentages are then to be comparedto other companies' ratios in a process called benchmarking,so that you can see how your target stacks upto peer companies. 2-Horizontal analysis is when you take specific line itemsfrom your current year's financial statementsand compare them to previous,as well as forecasted years' line items,which will show patterns and rates of growthfor these items over time. 3-Leverage analysis is another wayto assess company performanceby comparing various debt metrics to equity ones.The result is that you get a better pictureof the company's capital structure than if you wereto just look at debt or just equity figures alone. 4-Growth rate analyses involve looking at pastand projected rates of growth,similar to horizontal analysis,but has broader applications, such as year-over-year,regression, and other forecasting analyses.5-Profitability analysis uses common ratiosof income statement line itemsto determine how attractive the economicsof a target company are.These ratios include gross margins, EBITDA, EBIT,and net profit margins, and again,these should be benchmarked against peer companies. 6-Liquidity analysis looks at a business's abilityto satisfy short-term obligations,which are those due in less than a year.This involves looking at ratios taken from line itemson the balance sheet, including current ratio,networking capital, and the acid test. 7-Cash flow analyses are importantin a financial analyst toolkit because cash is king,so it is critical to look at a business's abilityto generate cash flow.This entails looking at the operating cash flow,free cash flow to the firm, and free cash flow to equity.8-Valuation analysis is the processof building financial models, often in Excel,to determine the value of a company. #business #data #growth #work #building #economics #economics #health #networking

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"I want to learn about Financial Analysis but don't know where to start!"This was me almost a month ago. I saw CA's working as Financial Analysts & always wondered how does the CA cirriculum teaches you about the same? I was curious to understand "How can I apply what I have learnt so far into practical application?"So, I went on to google and read as much as I could. Here's a summary for you!🚀✨. . 💼What is Financial Analysis? Financial analysis refers to an assessment of the viability, stability, and profitability of a business, sub-business or project.It is performed by professionals who prepare reports using ratios and other techniques, that make use of information taken from financial statements and other reports.🔍 What's the secret behind successful financial analysis?🚀 𝗪𝗿𝗮𝗽𝗽𝗶𝗻𝗴 𝘂𝗽 𝘁𝗵𝗲 𝗥𝗶𝗴𝗵𝘁 𝗧𝗼𝗼𝗹𝘀:Understanding financial statements, including balance sheets, income statements, and cash flow statements, is fundamental to uncover the insights hidden about a company's financial health, profitability, and liquidity. For this you need to strengthen your skills to interpret financial ratios, such as liquidity ratios, profitability ratios, and leverage ratios, to gain a holistic view of a company's performance.🚀 𝗧𝗵𝗲 𝗔𝗿𝘁 𝗼𝗳 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁𝗶𝗻𝗴:Becoming well-versed in forecasting techniques such as trend analysis, regression analysis, and financial modeling is the key. Forecasting empowers finance professionals to estimate future financial performance, identify potential risks, and make data-backed projections. To perform this, one needs to sharpen his abilities to analyze historical data, market trends, and industry benchmarks. 🚀 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗩𝗶𝗲𝘄𝘀 𝗼𝗻 𝗜𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 𝗢𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝗶𝗲𝘀:Financial analysis shouldn't exist in a vacuum. Incorporating external factors like economic conditions, industry dynamics, and competitive landscape into your evaluation is helpful. Moreover, staying up-to-date on market trends, regulatory changes, and emerging technologies that impact the financial world can enhance the ability to provide strategic insights that align with the broader business environment valuably. 🚀 𝗘𝗻𝗵𝗮𝗻𝗰𝗶𝗻𝗴 𝗔𝗻𝗮𝗹𝘆𝘁𝗶𝗰 𝗦𝗸𝗶𝗹𝗹𝘀:Lastly, continuous learning and skill enhancement are key to thriving in the finance industry. Keeping yourself updated with the latest tools, software, and analytical techniques can help to stay ahead of the competition.. . . The art of financial analysis is a blend of technical skills, sound judgment, & the ability to transform complex financial data into clear, actionable insights. 💡💰What are your experiences with financial analysis? Drop some tips in the comments below! 🌟💼. . . Follow Aditi Jaiswal for more! ✅#FinancialAnalysis #DataDrivenDecisions #FinanceCareers #ContinuousLearning #Networking #linkedin #finance #financejobs #financeindustry

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FINANCIAL ANALYSIS:- A small gyst 💹 It’s a process of evaluating a company’s financial performance by analyzing financial statements, ratios and other financial data to gain insights into the company’s financial performance and health. This typically involves an examination of both historical and projected profitability, cash flows and risk. It involves recording and analyzing accounts and financial ratios to determine a company’s performance, trends and also areas of improvement. Different methods can help a company forecast its future financial performance and also enable investors to make informed decisions.Four important elements for financial analysis:1)Balance sheet2)Income statement3)Cashflow statement4)Statement of retained earningsTypes of financial analysis: ⬇ 💰 Vertical- involves taking major line itemsof income statement and then dividing them by revenue , expressing them as percentages. Percentages are compared to other companies ratios called benchmarking so that you can see how your target stack up against peers.💰 Horizontal- Involves taking specific line items from your current years financial stmnt and comparing them to your previous and forecasted years line items. It also shows patterns and rates of growth for these items over the time💰 Leverage- Involves assessing company performance by comparing various debt metrics to equity ones . Shows a better picture of the company’s capital structure than looking at debt or equity figures alone.💰 Growth rates- Involves looking at past and projected rates of growth , includes Y-O-Y ,regression and other forecasts analysis💰 Profitability- Uses common ratios of income statement line items to determine the attractiveness of the target company’s economics. Ratios include gross, EBITDA , EBIT and Net profit margins. Also these should be benchmarked against peers of the company💰 Liquidity – Looks at the business’s ability to pay short term due’s and obligations which are due in less than a year . Involves ratios from line items on the BS include current ratio, Working capital and the acid test ratio.💰 Cash flow- Entails looking at the operating cash flow , free cash flow, free cash flow to firm as well as equity 💰 Valuation- process of building financial models often in excel to determine the value of the company . Done through three major ways- the cost approach, the market approach or the DCF analysis. Often uses a weighted combo of these three to arrive at a final valuation number💰 Variance analysis- Involves comparing actuals to budgeted forecasts results, imp for internal planning and budgeting processes that are often responsibility of accounting and finance professionals.#business #finance #financialanalysisNamaste Dosto 😁 Feedback appreciated ✌

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Exploring Profitability KPIs: Key Metrics for Financial Analysis 📈As a financial analyst, it is essential to track and analyze profitability KPIs to assess the financial health of a company. Profitability KPIs measure how efficiently a company is converting revenue into profit. There are many different profitability KPIs, but some of the most important include:1.Gross Profit Margin:This KPI measures how much profit a company makes on each dollar of revenueCalculation: (Gross Profit / Revenue) x 100Interpretation: A higher margin indicates efficient production and pricing strategies, while a decline may signal cost pressures or pricing issues.2.Net Profit Margin:Calculation: (Net Profit / Revenue) x 100Interpretation: Reflects the company's ability to control expenses. A rising trend suggests efficient cost management, whereas a declining trend may raise concerns.3.Operating Profit Margin:Calculation: (Operating Profit / Revenue) x 100Interpretation: Measures the efficiency of core operations. An increase shows operational effectiveness, while a decrease may require a closer look at operational costs.4.Return on Assets (ROA):Calculation: (Net Profit / Total Assets) x 100Interpretation: Evaluates how effectively assets are employed to generate profit. A higher ROA indicates efficient asset utilization.5.Return on Equity (ROE):Calculation: (Net Profit / Shareholders' Equity) x 100Interpretation: Measures the return generated for shareholders. A rising ROE indicates strong profitability in relation to shareholder investments.6.Earnings Before Interest and Taxes (EBIT) Margin:Calculation: (EBIT / Revenue) x 100Interpretation: Reflects operational profitability before considering interest and taxes. A higher EBIT margin signifies better operational efficiency.7.Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin:Calculation: (EBITDA / Revenue) x 100Interpretation: Similar to EBIT margin, but excludes depreciation and amortization. Useful for assessing cash flow potential.8.Contribution Margin:Calculation: (Contribution Margin / Revenue) x 100Interpretation: Indicates the proportion of revenue available to cover fixed costs. A higher contribution margin implies better cost coverage.These KPIs are invaluable for financial analysis, offering insights into a company's health and performance. By understanding these KPIs, financial analysts can assess the financial health of a company and make informed decisions about investment and lending. Remember, context is key, and comparing these metrics over time or against industry benchmarks provides a clearer picture of your organization's profitability.Stay tuned for more financial insights, and feel free to reach out if you have any questions or need assistance with your financial analysis. Let's drive profitability together! 💼📈 #Financialanalysis #ProfitabilityKPIs #FinancialInsights #KPIs

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There are several key types of financial analysis, each with its own focus:Ratio analysis:This involves calculating various ratios based on the information in a company's financial statements,such as the debt-to-equity ratio,current ratio,and return on equity.These ratios provide a quick and standardized way to compare companies within the same industry or track a company's performance over time.Opens in a new windowwww.klipfolio.comdebttoequity ratio graphHorizontal analysis:This involves comparing a company's financial statements over time,looking for trends and changes in key metrics such as revenue,expenses,and profits.This can help identify areas of growth or decline and potential areas for improvement.Opens in a new windowwww.investopedia.comhorizontal financial analysis graphVertical analysis:This involves analyzing a specific financial statement,such as the income statement or balance sheet,to understand the relative contribution of different components to the overall picture.This can help identify major revenue sources,cost drivers,and asset allocations.Opens in a new windowwww.slideteam.netvertical financial analysis graphTrend analysis:This involves examining a company's financial data over a longer period to identify long-term trends and patterns.This can be helpful for making strategic decisions about future investments or growth strategies.Opens in a new windowhttps://lnkd.in/eXJsfD55trend analysis graphFinancial analysis is not just about crunching numbers; it's about using those numbers to tell a story. By interpreting the data and considering the broader context, financial analysts can provide valuable insights that can help businesses make informed decisions, manage risks, and achieve their financial goals.Here are some of the benefits of conducting financial analysis:Improved decision-making:By understanding a company's financial health and performance,businesses can make better decisions about investments,lending,pricing,and other critical areas.Increased profitability:Financial analysis can help identify areas where a business can improve its efficiency and profitability.Reduced risk:By identifying potential financial risks,businesses can take steps to mitigate them and protect their assets.Enhanced competitiveness:Understanding the financial landscape of your industry can help you identify opportunities to gain a competitive edge.Financial analysis is a valuable skill for anyone involved in the business world, from entrepreneurs and investors to corporate executives and financial professionals. By developing your financial analysis skills, you can gain a deeper understanding of how businesses operate and make informed decisions that can lead to success.I hope this provides a helpful overview of financial analysis. If you have any further questions or would like to delve deeper into a specific aspect of financial analysis, feel free to ask!

Technical Tuesday: Unlocking Financial Analysis TechniquesGood morning everybody! Welcome back to another Technical Tuesday post where we will be diving into the fascinating world of Financial Analysis and equip you with powerful tools to make insightful decisions for your business. 1. Ratio Analysis: a cornerstone of financial analysis, enabling you to assess a company's performance from various angles. - Liquidity Ratios: Measure your company's ability to meet short-term obligations. Calculate the Current Ratio and Quick Ratio to determine liquidity levels and short-term financial health.- Profitability Ratios: Analyze your business's ability to generate profit. Calculate Gross Profit Margin, Operating Profit Margin, and Net Profit Margin to evaluate operational efficiency and profitability.- Efficiency Ratios: Assess how efficiently your company utilizes assets and manages inventory. Examine metrics like Inventory Turnover, Days Sales Outstanding (DSO), and Days Payables Outstanding (DPO).- Leverage Ratios: Understand the extent of your company's debt and financial leverage. Compute Debt-to-Equity Ratio and Interest Coverage Ratio to evaluate financial risk.2. Trend Analysis: By analyzing financial data over time, you can identify trends and patterns that reveal valuable insights. Look for consistent growth or decline in key financial metrics, revenue streams, or expense categories. Spot areas of improvement and areas where corrective actions may be necessary.3. Common-Size Analysis: Transforming financial statements into percentages allows for easy comparison between companies of different sizes and industries. Conduct common-size analysis on the Income Statement and Balance Sheet. Analyze how each line item contributes to total revenue or total assets. This technique provides valuable insights into the company's financial structure and operating efficiency.4. Cash Flow Analysis: Cash flow analysis is crucial for understanding the actual cash position of your business. Evaluate the sources and uses of cash through the Cash Flow Statement, including Operating, Investing, and Financing activities. Understand your company's ability to generate and manage cash effectively, ensuring liquidity for day-to-day operations and investment opportunities.5. Sensitivity Analysis: Explore "what if" scenarios by conducting sensitivity analysis. Understand the impact of changing variables (e.g., sales volume, price, costs) on financial outcomes. This technique enables you to plan for various possibilities, assess potential risks, and develop contingency plans to mitigate adverse effects.Strengthening your financial analysis skills is key to making well-informed decisions that drive your business forward. Whether you're a financial expert or just starting your journey, mastering these techniques will elevate your financial acumen. If there are any other techniques that I missed, feel free to let me know! #financialmodeling #startup

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Strategically Aligning SWOT Insights with Financial PlanningA conversation between a CEO and Finance Head discussing how the SWOT analysis aligns with financial analysis:CEO: "We've completed our SWOT analysis and identified several opportunities in emerging markets and some threats from increased competition. How can we align this with our financial analysis?"Finance Head: "Based on our strengths, like our robust R&D department, our financial analysis shows we have a healthy cash flow that can support expansion. Our profitability ratios are strong, suggesting we can invest in these new markets."CEO: "That’s promising. What about our weaknesses, like our dependency on a single supplier for raw materials?"Finance Head: "Our liquidity ratios are a bit tight, partly due to this bottleneck. Trend analysis indicates that this could become a serious issue if not addressed. I recommend allocating funds to diversify our supplier base to mitigate this risk."CEO: "Agreed. And the opportunities we've pinpointed?"Finance Head: "Our operating cash flow ratio is healthy, and our trend analysis shows steady growth in cash reserves. We can leverage this to seize market opportunities by investing in marketing and new product development."CEO: "Excellent. But with these new investments, how do we ensure financial stability given the competitive threats?"Finance Head: "Our debt-to-equity ratio is lower than the industry average, giving us room to finance these initiatives without over-leveraging. Plus, the scenario analysis suggests that by diversifying our product lines, we can safeguard against competitive threats."CEO: "I like that approach. And how does this affect our resource allocation?"Finance Head: "The financial analysis indicates we should allocate more resources to our strengths, like our high-margin product lines, ensuring they continue to thrive. We can also use some of our cash reserves to shore up any weaknesses that could impact our financial stability."CEO: "Perfect. Let’s move forward with integrating these insights into our strategic plan and financial projections. It's important we maintain this alignment to drive sustainable growth."This conversation illustrates the strategic dialogue that might occur between a CEO and Finance Head, linking the findings of a SWOT analysis with financial metrics and strategic decision-making.The Finance Head must balance integrating SWOT analysis with financial planning, addressing challenges such as blending qualitative and quantitative data, aligning short-term stability with long-term goals, managing budget constraints, mitigating strategic risks, and evaluating the financial impact of strategic changes.This approach ensures that strategic decisions are financially viable and contribute to the company's overall growth and stability.

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