Financial analysis is an orderly process to the available data in order to
obtain
information used in the decision and in evaluating the performance of companies
in the past, the present and anticipate what will be the company's results in
the future .
Financial analysis helps to identify the strengths of the company's position to promote
it, and weaknesses to solve her treatment; this will be through access to
financial statements published in addition to the use of the information
available about the stock prices and general economic indicators.
The Financial analysis depends on the study of the financial statements using statistical methods in order to show the
links that bind its members and changes in these elements during or several
time periods.
Principles of Financial Analysis:
1/ the target of the financial analysis: - Can locate the target as the problem in the
entity.
2/ the financial information: - Analyst can be obtained from the
company's financial statements published and unpublished, and the auditor's
reports and the reports of the board of directors,
3/ choosing the right standard of financial
analysis criteria to be used in measuring outcomes.
4/ study and analysis of the reasons for
deviation: the most important stages of
analysis and require a deep understanding of the results of the financial
analysis.
5/ develop the necessary recommendations in the
report which the end of the process,
Financial analysis tools:-
The most
important financial analysis tools used by financial analysts to study the
financial information available to them can be identified in two types
A) Trend analysis: - (vertical, horizontal)
B) Ratio analysis: - (liquidity, activity,
profitability, market)
Trend analysis:- financial trend according to a certain direction, either during the
same period and comparing his collection account shall be (vertical analysis)
or at the level of several accounting periods and compared to the value of the
account in the period desired periods and other so-called (horizontal
analysis).
Ratio analysis: - As compared to the figures in the consolidated financial period are
the same. So it is compared to the accounts or financial statements with which
each causal terms, and be the outcome of this comparison financial ratio.
Under
these causal relationships can be derived a large number of financial ratios,
enables financial analysts to use as indicators in assessing the performance of
companies and the various aspects of its activities.
Types of Ratio Analysis:-
1/ liquidity ratios: Financial liquidity means in the fact that: -
the ability to convert current assets into cash in order to satisfy outstanding
obligations.
These ratios include:-
Current Ratio = Current assets divided by current
liabilities
Quick Acid Ratio = Current assets - stocks and
dividing by current liabilities
Cash Ratio = ratio of cash assets and cash
equivalents divided by current liabilities
2/ Activity ratios: Group of rates measure the success of the company in the management of
assets and liabilities, other words are these ratios measure the company's
ability to convert the balance sheet accounts to cash or sales, and rates of
this group used mostly for evaluating the performance of companies' commentator
short-term financial position
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