Financial
Analysis
What
is 'Financial Analysis'
Financial
analysis is the process of evaluating businesses, projects, budgets and other
finance-related entities
to
determine their suitability for investment. Typically, financial analysis is
used to analyze whether an entity is
stable,
solvent, liquid, or profitable enough to be invested in. When looking at a
specific company, the financial
analyst
will often focus on the income statement, balance sheet, and cash flow
statement. In addition, one key
area
of financial analysis involves extrapolating the company's past performance
into an estimate of the company's future performance.
BREAKING
DOWN 'Financial Analysis'
One
of the most common ways of analyzing financial data is to calculate ratios from
the data to compare against those
of
other companies or against the company's own historical performance. For
example, return on assets is a common ratio
used
to determine how efficient a company is at using its assets and as a measure of
profitability. This ratio could be calculated
for
several similar companies and compared as part of a larger analysis.