We want to talk about the importance and levels of financial analysis of the company today. In this article, we will discuss what a financial analysis is and its key types, depending on the object of analysis.
Let’s start with the definition as usual.
Financial analysis definition.
Financial analysis is a system for collecting financial information about a company and processing such information in order to determine the financial position of a company, as well as to provide a financial planning and make management decisions.
A financial analysis can be classified according to many features, one of the first of which is an object that is studied by analysis.
Let’s list the main types of financial analysis, depending on the object and review the practical aspect of organizing a multi-level system of analysis of a company:
1. Financial analysis of a separate transaction.
A company can carry out many financial transactions, many of which are standard, but some operations may be non-standard or one-time.
The financial analysis of individual transactions most often carried out in relation to one-time and non-standard operations.
In carrying out such an analysis, an financial analyst studies the levels of costs and income that will cause the transaction to a company, as well as other indicators associated with this transaction.
A financial analysis report for a particular operation can be carried out either before or even after such operation in time.
An analysis before an operation is often used to decide on the expediency of such an operation.
An analysis after a transaction is carried out in order to determine the actual financial results of such an operation.
2. Analysis of a division of a company.
Many companies have different functional units in their structure, such as manufacturing, procurement, marketing, trading and others.
Companies can have different territorial divisions as well.
It is very important for the management of a company to know a financial efficiency of each unit.
An analysis of the financial activity of a unit is carried out for this purpose.
A financial analyst uses data of a unit at a certain time is used for such an analysis often.
Various managerial decisions, such as decisions to motivate unit employees or decisions on reorganization, can be made based on the results of the analysis of a unit financial activity.
3. Financial analysis of a company as a whole.
An analysis of financial performance of a company is the highest level of a financial analysis depending on the object.
All financial activities of a company are studied at this level.
Data from the analysis of particular operations, the analysis of units, as well as data of a company’s financial reporting and overall work is used for such an analysis.
An analysis of a company’s financial position is important not only for its management, but also for external counterparties.
The results of such an analysis affect the business reputation of a company, its credit and investment opportunities.
An analysis of the financial position of a company is carried out within the framework of an audit quite often, and it occupies a significant part of an auditor’s report.
We will talk about sources of information, methods, tools and other aspects of financial analysis in the following articles.