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Financial Analysis Lecture

Financial analysis evaluates a company's performance using various tools and techniques, including horizontal and vertical analysis, ratio analysis, and cash flow analysis. Key ratios such as liquidity, profitability, solvency, and efficiency help assess financial health and guide strategic decisions. The document emphasizes the importance of financial analysis in making informed business decisions.

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gabrielmagdaluyo15
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9 views2 pages

Financial Analysis Lecture

Financial analysis evaluates a company's performance using various tools and techniques, including horizontal and vertical analysis, ratio analysis, and cash flow analysis. Key ratios such as liquidity, profitability, solvency, and efficiency help assess financial health and guide strategic decisions. The document emphasizes the importance of financial analysis in making informed business decisions.

Uploaded by

gabrielmagdaluyo15
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Understanding Financial Analysis: Tools, Techniques, and Applications

1. Introduction to Financial Analysis

Financial analysis involves evaluating financial data to understand a company's performance and

guide strategic decisions.

2. Types of Financial Analysis

A. Horizontal Analysis: Compares financial figures over time.

Example: Revenue grew from $1.2M to $1.5M (25% increase).

B. Vertical Analysis: Expresses items as a % of a base.

Example: COGS = 60% of Sales.

3. Ratio Analysis with Examples

A. Liquidity Ratios

- Current Ratio = Current Assets / Liabilities (e.g., 2.5)

B. Profitability Ratios

- Net Profit Margin = Net Income / Revenue × 100 (e.g., 10%)

- ROA = Net Income / Total Assets × 100 (e.g., 15%)

C. Solvency Ratios

- Debt-to-Equity = Total Liabilities / Equity (e.g., 0.5)

D. Efficiency Ratios

- Inventory Turnover = COGS / Average Inventory (e.g., 4 times)

4. Cash Flow Analysis

Assesses ability to generate cash from operating, investing, and financing activities.
5. Common Business Ratios

- Gross Profit Margin = (Sales - COGS) / Sales × 100

- Receivables Turnover = Net Credit Sales / Avg Receivables

6. Real Business Applications

- Use Current Ratio to evaluate liquidity for expansion.

- Use Net Margin and ROE to assess profitability.

- Use Turnover ratios for operational efficiency.

7. Conclusion

Financial analysis provides key insights into a company's financial health and supports informed

strategic decisions.

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