Financial analytics involves the process of evaluating a company’s financial data to assess its performance and recommend improved ways of moving forward. Today’s business environment is more competitive than ever. While finance forms a critical part of every business, companies need more than basic financial statements and reports.
They need progressive, predictive, and actionable insights that can help mould future business strategies and improve routine decision-making processes.
The sheer ability of financial analytics to address critical business problems has led to an acute demand for skilled Financial Analysts and courses for Financial Analysts.
So, here’s a beginners’ guide on financial analysis and where you can find the best Financial Analyst course.
Table of Contents
- 0.1 Types of Financial Analysis
- 0.2 Horizontal Analysis
- 0.3 Vertical Analysis
- 0.4 Financial Ratios
- 0.5 Financial Statement Analysis
- 0.6 Income Statement/Profit and Loss Statement
- 0.7 Balance Sheet
- 0.8 Cash Flow Statement
- 0.9 Techniques of Financial Analysis
- 0.10 Comparative Financial Statements
- 0.11 Trend Analysis
- 0.12 Statement of Changes in Working Capital
- 0.13 Common Size Statements
- 1 Financial Analysis Best Practices
- 2 Financial Analysis Prodegree Course
Types of Financial Analysis
Out of the several financial analysis types, we’ll briefly talk about the three most important ones:
Horizontal analysis helps an analyst identify important trends and determine whether the company is growing or facing decline. It is done by taking financial data of a specific period and comparing them to calculate the growth rate.
In this type of financial analysis, various components of the company’s income statement are divided by the revenue and expressed as a percentage. The results are then compared against those of other companies within the industry to evaluate performance.
Financial ratio analysis helps to track and make comparative judgments about the company’s performance. This quantitative analysis assesses a company’s leverage, liquidity, growth, profitability, margins, valuation, rates of return, and more.
Financial Statement Analysis
Every company creates and monitors the following three main financial statements:
Income Statement/Profit and Loss Statement
The income statement reveals a company’s revenue and breaks it down against the business expenses. In other words, it shows the company’s net profit or loss after incurring costs.
The balance sheet reports a company’s assets, liabilities, and shareholder’s equity at a particular point in time. It is the basis for calculating the rates of return and evaluating the company’s capital structure.
Cash Flow Statement
The cash flow statement summarizes a company’s cash flow from investing activities, operating activities, and financing activities. It shows a company’s ability to function in the short and long term based on the amount of cash flow into and out of the business.
Techniques of Financial Analysis
An organization’s financial performance can be assessed using a variety of analysis techniques. Here we’ll cover four common financial analysis techniques:
Comparative Financial Statements
This technique involving the income statement and balance sheet compares two financial statements from different periods in time.
In this analysis technique, metrics of one period are compared with another to reveal the financial health status of the company.
Statement of Changes in Working Capital
The total current liabilities are deducted from the total current assets to calculate the net working capital in this technique.
Common Size Statements
This vertical analysis technique helps in the comparison of two similar statements between companies or different periods.
Financial Analysis Best Practices
- Identify critical business problems and work out how financial analytics can help.
- Start with a small pilot program requiring minimum effort and investment.
- Organize, structure, and manage data sources.
- Continuously monitor and improve data and tools for increased impact and relevance.
Financial Analysis Prodegree Course
There are a lot of financial analysis courses available online. One of the more popular courses is the Financial Analysis Prodegree, in collaboration with KPMG. It is a 180-hour skill-building Financial Analyst Course covering financial modeling, accounting, valuation, corporate strategy, and equity research. One of the most rigorous project-based courses for Financial Analysts, it prepares individuals for careers across sectors like corporate finance, investment banking, and private equity.