Financial Analysis of XYZ Company
Financial analysis refers to investigating a company's performance, in the context of industry and economic environment to arrive at a decision or recommendation.
Financial analysis is used to evaluate economic trends, set financial policy, build long-term plans for business activity, and identify investments.Also, it can be conducted in both corporate finance and investment finance settings.
One of the common ways to analyze financial data is by calculating ratios from the data in the financial statements to compare with those of other companies.
Corporate financial analysis
In corporate finance, the analysis is conducted internally by the accounting department and shared with management to improve business decision-making. This type of internal analysis may include ratios such as net present value and internal rate of return to find projects worth executing.
A key area of corporate financial analysis involves extrapolating a company's past performance, such as net earnings or profit margin, into an estimate of the company's future performance. This type of historical trend analysis is beneficial to identify seasonal trends.
Investment financial analysis
It involves external analysis for investment purposes, and can either be a top-down or bottom-up investment approach. A top-down approach first looks for macroeconomics opportunities as high-performing sectors and then drills down to find the best companies within that sector.
A bottom-up approach looks at a specific company and does a similar ratio analysis to the ones used in corporate financial analysis looking at past performance and expected future performance as investment indicators.
TYPES OF FINANCIAL ANALYSIS
Fundamental analysis uses ratios gathered from data within financial statements, such as a company's earnings per share to determine business value.
Technical analysis uses statistical trends gathered for trading activities such as moving averages.
The financial analysis aims to analyze, whether an entity is stable, liquid, or profitable enough to warrant a monetary investment.
Works Cited
Alicia Tuovila, David Kindness, Suzanne Kvilhaug.Investopedia, "Financial Analysis", December 20, 2023.
