Financial Analysis consists of evaluating its financial situation at a specific time like a financial diagnosis through doing a business.
It is based on the various accounting statements of the company and on the financial and economic data of its sector of activity. Thus, the financial analysis makes the figures speak by carrying out various restatements on the accounting documents.
Objective of Financial Analysis
The objective of any financial analysis is to be able to judge the financial health of a company in an economic environment at a given time.
Unlike the mandatory tax return each year, financial analysis does not follow any rule imposed by law and is in no way mandatory, each financial analyst has their own methods.
The financial analysis makes use in particular of the tax return and the data provided by the accounts of the company evaluated. Thus, the income statement, the balance sheet, the details of fixed assets, depreciation and the composition of the share capital, among others, are restated in order to show the cash flow and the investment policy of the company.
The various restatements carried out also make it possible to calculate ratios, such as the debt ratio, the rate of return and the solvency ratio.
Financial analysis creates tools intended to better visualize the financial situation of a company at time T, in particular its economic performance, its development prospects, its debt, its profitability and its financial stability.
All this information resulting from the financial analysis is used at different levels by:
> An investor
> A potential buyer
> Banks in the context of a loan application
> The various stakeholders of the company: employees, suppliers and customers.