Financial Analysis

 

Top executives make different financial and management decisions on a daily basis. Timely access to correct information and the ability to promptly use this information in solving critical issues is an asset that differentiates a Great Leader from a Good Leader. In order to decide whether a new investment, loan or cut in operational costs is justified or not, the assessment of different financial ratios is an essential tool in the decision-making process.

 

In order to assess the economic situation of a business entity, the company needs to internally prepare different financial statements (statement of profit and loss, balance sheet). On the other hand however, the information disclosed in financial statements is not sufficient for drawing conclusions and making necessary decisions. This means that the information needs to be further analysed and interpreted. The analysis and interpretation of results is thus important for the assessment of efficiency, profitability, performance and forecasts for the future. In accordance with needs and targets, financial analysis should meet the following objectives:

 

Measurement of profitability – the primary objective of the company is to generate profit from the investments of its owners. Financial analysis helps determine the return on the capital that the company has invested, or in other words, how efficiently the company uses its invested assets.

Identification of trend lines – by comparing varied financial results: costs, turnover, gross profit, net profit, etc. to previous periods, it is possible to draw characteristic trend lines.

 

Evaluation of the growth potential of the company – the analysis of trends and financial indicators provides sufficient information for the evaluation of the company’s further growth capacity.

 

Evaluation of the competitive position – on the basis of different financial coefficients and efficiency indicators it is possible to perform a comparative analysis, which provides an overview of the company’s market situation and assesses the position of the company compared to its main competitors.

 

Evaluation of the general economic performance of the company – the objective of the financial analysis is to assess the economic strength of business operations. Based on the results of the analysis, the management will be able to make several important decisions, e.g. how strong the company’s investment capacity is (how much it can invest in fixed assets), is it reasonable to pay dividends to the owners, how strong the company’s cash flows are, etc.

 

Assessment of the solvency of the company – the analysis provides assurance that the financial capacity of the company is sound and it has sufficient resources for the fulfilment of its liabilities.

 

Austin’s experienced team can help you identify essential bottlenecks and advise the management and owners of the company in making important financial decisions.