Financial Analysis

What is Financial Analysis and why is it important to understand? Financial analysis is the process of evaluating businesses and / or finance-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to warrant a monetary investment.

KEY TAKEAWAYS

• If conducted internally, financial analysis can help managers make future business decisions or review historical trends for past successes.
• If conducted externally, financial analysis can help investors choose the best possible investment opportunities.
• There are two main types of financial analysis: fundamental analysis and technical analysis.
• Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a security.
• Technical analysis assumes a security’s value is already determined by its price, and it focuses instead on trends in value over time.

Some Key Financial metrics are:

• Peg Ratio
• Payback Percentage
• Yield on Cost
• Internal Rate of Return
• Projected Annual Dividends