Definition of financial analysis and objectives of financial analysis
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Contents :
1 Definition of financial analysis
2 objectives of financial analysis
3 financial analysis tools
4 characteristics of financial analysis
5 The importance of financial analysis
6 types of financial analysis
7 results of financial analysis
1 Definition of financial analysis
Financial analysis:
It is a process that aims to evaluate the ways of investing and investing money in companies, and studying the efficiency and profits resulting from its operations, and depends on using a set of methods, such as analyzing financial ratios, with the aim of recognizing opportunities and problems related to investment, and financial analysis is defined as a study of the financial information of an enterprise Or a specific project, in order to understand cash flow, profits, and expenses. Another definition of financial analysis is the evaluation of projects and businesses associated with financing, with the aim of determining the nature of their performance and suitability, and financial analysis is often used to study the financial condition of the facility, in terms of being stable and profitable, in order to justify its cash investments.
2 objectives of financial analysis
As an important means for all types of establishments, financial analysis seeks to achieve a set of goals, the most important of which are:
* Determining the facility's financial position.
* Comparing the financial position of the facility with that of the institutions operating in the same sector.
Participate in making money decisions by achieving the highest returns and the lowest costs.
* Using suggested financial policies to change the financial condition of the facility.
* Contribute to directing individuals from investors to participate in investment in all areas of investment.
* Following up the financial risks that the facility may face, due to the policy used in financing.
* Knowing the enterprise's success rate in achieving its goals and profits.
3 financial analysis tools
The application of financial analysis depends on the use of the analyst responsible for one of the analysis tools, which helps to reach the desired goals successfully, and the most important of these tools:
*- Financial structure analysis:
It is to ensure that there is financing for needs without impacts on financial balance and financial return, by relying on the application of the principle of liquidity and maturity, or separating the activities of the analysis
*- Activity and results assessment:
is the concern for the way firms achieve results, and judging the extent to which their activities can reach profits through the use of intermediate management balances, which show the stages that shape causes and results, which contributes to making the right decisions.
*- Cost-effectiveness evaluation:
is the comparison between the results achieved and the methods used to achieve them, and they are classified as the most objective indicators in the performance evaluation process, and they are used to make investment and financing decisions.
*- Cash flow analysis:
It is one of the most sophisticated tools of analysis, as it is used in balanced financial analysis, and it is interested in following the causes of the surplus or financial deficit in the treasury, and also contains indicators used in the strategic decision-making process.
4 characteristics of financial analysis
Financial analysis is characterized by many characteristics, including:
* Financial analysis is an activity that seeks to convert the financial statements of the financial statements into a set of information used in making decisions
* Financial analysis includes all activities at various administrative levels.
* Financial analysis does not rely on limited data from one financial statement, but rather includes all financial statements such as income and budget.
5 The importance of financial analysis
The use of financial analysis in enterprises is of great importance to the work environment in them, and this importance is summarized according to the following points:
* Assist the administration in setting goals, which contributes to preparing appropriate plans for the implementation of economic activity.
* Support the administration in correcting errors as they occur, by providing them with appropriate corrective methods. Discover new investment opportunities.
* This analysis is a tool that helps support the effectiveness of the audit.
* Contribute to diagnosing the facility's financial position.
* Knowing the establishment's ability to obtain loans and pay for them.
6 types of financial analysis
There are several types of financial analysis, and they are classified according to the following foundations:
* The executing agency for financial analysis, which includes two types:
* Internal analysis:
It is the financial analysis that is executed through a department or employee of the structure
Organizational in the organization, such as the accounting department, and financial management.
* External analysis: It is the financial analysis that is executed by a party outside the establishment, and contributes to serving external parties, and seeking to achieve its own goals. Examples include chambers of commerce and industry, and banks.
* The method used in financial analysis, and is divided into several types, including
Comparative analysis, mathematical analysis, and analysis based on
Indices.
Financial analysis according to its relationship with time, and includes two types:
* 1- Vertical Analysis: It is the analysis used to analyze the financial statements
Separately; each list is analyzed independently of the lists
The other, and this analysis is applied in a vertical way to the menu items, is attributed
Each element is added to the total value of its elements, and then added to
A total of a subset of two, that is, the relationships between all elements are studied on
A holistic basis, and within a specified date is described as static or static,
This analysis is described as a relative distribution.
* 2- Horizontal analysis: It is the analysis that studies the behavior of each of the special elements
Financial statements during the passage of time, where the movement of each component follows a decrease or increase with the passage of time
Time, and this analysis is dynamic because of its ability to explain the changes that occur during
A long period of time.
7 results of financial analysis
After applying the financial analysis of all the financial statements of an institution, by using the tools of financial analysis, this leads to the emergence of a set of results, namely:
* The results of the internal analysis, including the following:
- Use the information obtained in the field of public control.
Submit a ruling on financial management during the period of implementing the financial analysis.
Contribute to making the appropriate decision about distributing or investing financial profits.
Providing provisions on the nature of the implementation of financial budgets.
* The results of the external analysis, including the following:
Use tax identification numbers to assess financial results.
To present a proposal about a financial policy aimed at changing the financial condition of the facility.
Evaluating the financial condition of the facility and its ability to bear the special results
With loans.
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