Financial analysis is a process of evaluating a company's financial statements to assess its financial health. Financial analysis involves recording and analyzing accounts and financial ratios to determine a company's performance, trends, and areas for improvement.
There are many different types of financial analysis, but some of the most common include:
* **Horizontal analysis:** This type of analysis compares a company's financial statements over time to identify trends.
* **Vertical analysis:** This type of analysis compares a company's financial statements to its industry peers to see how it is performing relative to its competitors.
* **Ratio analysis:** This type of analysis uses financial ratios to compare a company's performance to industry averages or to its own historical performance.
Financial analysis can be used for a variety of purposes, including:
* **Making investment decisions:** Investors use financial analysis to assess the risk and potential return of an investment.
* **Managing a company:** Managers use financial analysis to track the company's performance and identify areas for improvement.
* **Obtaining financing:** Lenders use financial analysis to assess a company's ability to repay a loan.
Financial analysis is a valuable tool for anyone who wants to understand a company's financial health. By understanding a company's financial statements, investors, managers, and lenders can make better decisions about their investments, operations, and lending practices.
Here are some examples of how financial analysis can be used:
* An investor might use financial analysis to compare the performance of two different companies before making an investment decision.
* A manager might use financial analysis to track the company's revenue and expenses over time to identify areas where costs can be cut.
* A lender might use financial analysis to assess a company's ability to repay a loan before making a lending decision.
Financial analysis is a complex and time-consuming process, but it is essential for anyone who wants to make informed decisions about a company's financial health.
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