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What Is a Financial Analysis?
Financial analysis delves into a company’s viability, stability, and profitability. The process is something like a health check-up for businesses — you examine your company’s financial statements the way a doctor looks at vital signs.
During financial analysis, you evaluate your balance sheets, income statements, cash flow statements, and any industry-specific documents. This analysis helps stakeholders in your business make informed decisions, whether for investment, management, or lending purposes.
Why Is a Financial Analysis Important?
A financial analysis guides your business through an unpredictable and constantly changing economy. It helps you understand and plan by revealing your primary cost centers, sources of revenue generation, and potential for profitability. In addition, a financial analysis plays a key role in risk assessment, helping you identify financial pitfalls and potential areas for growth.
What Is a Financial Statement Analysis? 4 Examples
Financial analysis is flexible, and you can tailor the process to your company. Use the financial analysis examples listed below as examples for your own financial planning and analysis efforts.
Fundamental Analysis
Fundamental analysis involves a deep dive into your company’s financial statements, assessing the intrinsic value of your business by examining earnings, expenses, assets, and liabilities. It’s a thorough examination aimed at understanding the core financial health of a business.
Technical Analysis
Technical analysis, on the other hand, is more about trends and patterns. This form of analysis is a hallmark of stock market trading, where analysts study historical market data and stock prices as predictive tools. Technical analysis is less about your company’s fundamentals and more about market psychology.
Horizontal Analysis
Horizontal analysis is a comparative tool that helps you spot differences in financial data over a series of periods. Using this form of analysis helps you track trends and growth patterns, informing your strategy by giving you a clear picture of the highest and lowest performance points within your business.
Vertical Analysis
Vertical analysis is all about proportions. It breaks down each item on a financial statement into a percentage, giving you clarity about the biggest sources of both profit and loss for your business. This method can help you assess the relative significance of certain expenses or revenues within a single period rather than comparing multiple periods.
Challenges With Analyzing Finances
Financial analysis is often tough. The process requires a keen eye for detail and a deep understanding of the principles of business operations. Analysts often spend hours troubleshooting due to inconsistent reporting standards, fluctuating market conditions, and the sheer volume of data that a company generates over a month, quarter, or year. What’s more, biases and subjective interpretations can skew the analysis, so a rigorous and objective eye is always essential.
Why Look To TGG for Help
This is where TGG steps into the picture. As a seasoned player in business finance consulting, we stand out with our comprehensive suite of services for diverse financial needs. With expertise in all of the types of analysis listed above, we can help you create financial analysis reports that serve your business well and equip you for success.
We understand the nuances of financial analysis and offer customized solutions that cater to specific business needs. As a team of CFOs, accountants, and advisors, we know firsthand what it takes for a business to overcome financial obstacles and come out on top.
What Is a Financial Analysis? Concluding Thoughts
If you need professional assistance, we have you covered. We know how to dissect, interpret, and apply financial data and can be your game-changing ally as you navigate the world of business finance. Contact us today to learn more about what a financial analysis is, how we create them, and how we can help you with your company’s finance management. Whether you need help with analysis, want to hire an outsourced CFO or accountant, or need short-term consulting, look no farther than TGG.
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Matt Garrett is the Founder and Chief Executive Officer of TGG. He is a regular speaker across the country on behalf of Vistage educating business owners on the need for sound financial practices, and is Vice President of the Board of Directors of FINACA. Under Matt’s leadership, TGG has received the following recognition: INC. 5000 top companies in the U.S. five years in a row; one of “San Diego’s Fastest Growing Companies” the past four years; and is among San Diego’s “Best Places to Work.”
