An overview of financial analysis, its importance in evaluating the financial health of a company, and the key tools and techniques used in the process.
Introduction to Financial Analysis – Structured Study Notes
| User | Typical Objective |
|---|---|
| Investors / Shareholders | Determine intrinsic value, estimate returns, assess risk. |
| Creditors / Lenders | Evaluate repayment capacity, set loan terms, monitor covenant compliance. |
| Management | Benchmark performance, allocate resources, plan strategic initiatives. |
| Regulators & Analysts | Ensure compliance, compare industry peers, issue ratings. |
| Statement | Main Purpose | Key Components |
|---|---|---|
| Income Statement | Shows profitability over a period. | Revenue, Cost of Goods Sold (COGS), Gross Profit, Operating Expenses, Net Income. |
| Balance Sheet | Provides a snapshot of financial position at a point in time. | Assets (Current & Non‑Current), Liabilities (Current & Long‑Term), Shareholders’ Equity. |
| Cash Flow Statement | Tracks cash generation & usage. | Operating Activities, Investing Activities, Financing Activities, Net Change in Cash. |
Tip: All three statements are inter‑linked; e.g., Net Income (Income Statement) → Retained Earnings (Balance Sheet) → Operating Cash Flow (Cash Flow Statement).
| Category | Typical Ratios | Interpretation |
|---|---|---|
| Liquidity | Current Ratio, Quick Ratio, Cash Ratio | Ability to meet short |