Financial analysis is the fundamental way to get to know a company’s business from a financial point of view.
Financial analysis has multiple benefits for business operations in the context of understanding the company’s financial performance and comparing the business with the market, i.e. the competition.
Only by comparing your company with competing companies you can get a clearer picture of you company’s financial stability and business success, which is a very important information for further business planning.
Taking into account the fact that financial institutions, i.e. banks, use these reports for analysis and decision-making when approving a certain financing, it is important for the purpose of future business to analyse past business, set and monitor goals so that the reports ultimately reflect the company’s business status in a more precise way and thus increase the possibility of realising the investment or financing of working capital.
The subjects of financial analysis are basic financial reports:
- Balance sheet showing the state of assets, liabilities and capital,
- Profit and loss account as an indicator of business success, and
- Cash flow report that analyses cash flows in a detailed way.
Financial analysis determines the basic parameters of a company’s financial condition, such as determining whether the company is liquid, how much debt it has, whether it is financially sound, successful, i.e. profitable.
During the analysis of the Balance sheet and P&L account, it is important to take into account their correlation in order to get a full financial picture of the company.