Financial analysis is a very detailed examination of the financial and economic condition and business performance of a company. It is carried out based on the financial statements of the entity: balance sheet, income statement, cash flow statement, statement of changes in equity, notes to financial statements, closing accounts, extracts from business records, and similar documents.
Based on financial analysis, the real and objective financial situation of a company can be assessed. The information obtained through financial analysis serves as a starting point for taking measures and actions aimed at improving the creditworthiness and performance trends in the company’s operations and development. Financial analysis should provide answers, among others, to the following questions:
- what is the structure of the company’s assets and its sources of financing;
- what is its liquidity and solvency;
- what is the actual and optimal level of inventory and working capital;
- where the company stands in terms of business performance;
- how management finances investments;
- whether the company generates sufficient profit;
- which business and financial risks it is exposed to, and to what extent;
- what is the level of indebtedness and financial stability;
- where the break-even point is;
- whether owners receive sufficient returns based on ownership, etc.
Financial analysis demonstrates the efficiency and effectiveness of financial policy as one of the key elements of corporate financial management. The results of financial analysis are important for forming an adequate financial policy. Financial policy, as an integral part of the overall business policy of a company, represents the basis for financial management. This function is carried out by the company’s financial management.
Financial analysis can be conducted using various methods and results in corresponding financial indicators, which can be grouped into several main categories:
- Financial structure indicators
- Liquidity indicators
- Financial stability and security indicators
- Net working capital (NWC)
- Leverage indicators
- Activity indicators
- Revenue and expense structure indicators
- Profitability indicators
- Break-even point
- Leverage
- Bankruptcy prediction models
- Agribusiness consulting
- Financial services
- Economic-financial expertise
- Advisory services for finding strategic partners
