Financial Analysis

Financial Analysis

Definition: Financial analysis involves evaluating businesses, projects, budgets, and other finance-related entities to determine their performance and suitability. It is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to warrant investment.

Key Components:

Profitability Analysis:

• Assessing the ability of a company to generate earnings relative to its revenue, assets, or equity.

Liquidity Analysis:

• Evaluating the ability of a company to meet its short-term obligations using its current assets..

Solvency Analysis:

• Determining a company's capacity to meet its long-term debts and financial obligations.

Stability Analysis:

• Assessing the consistency of a company's performance over time and its ability to withstand economic downturns.