Different Kinds of Financial Analysis
This is the kind of financial analysis studies different elements of the income statement. To demonstrate them in percentage it then divides these components by revenue. In order to make this analysis effective, it is also important to benchmark the results against other companies operating in the same industry to determine the performance of the company. The vertical analysis is the process that is also known as a common-sized income statement. This process allows the financial analyst to compare the different sizes of companies using their margins instead of their revenues.
Liquidity analysis is another major kind of analysis that addresses the ability of the company to generate enough cash to cover major business expenses. It majorly focuses on the balance sheet to study whether a company is capable to meet the short-term obligations. Here are some of the common examples of Liquidity Analysis:
- Current Ratio: This is obtained by dividing current assets with current liabilities. The ratio is used to measure the company’s strength to pay short-term obligations using current assets and cash.
- Interest Coverage: It is determined by dividing revenue before taxes and interest and interest expense. It measures, whether the company can pay interest expense from the generated revenue or not?
The profitability analysis is kind of an income statement analysis. The financial analysts can evaluate how well business economics is. It is one of the common analyses and students often face a lot of troubles while crafting assignments on it. If you are also going through the same then hire the financial analysis essay help online from professionals. However, here are important examples of measuring profitability:
- Gross Margin
- EBIT Margin
- Net Profit Margin
- EBITDA Margin
Cash Flow Analysis
The cash is considered a kind of finance. This is why it is important to emphasize on the ability of the business organization to learn how well its cash flow is going. Financial analysts use their best methods to study the cash flow statement of the company to come up with accurate results. The cash flow analysis is based on the three major sections which include operating activities, financing activities, and investing activities.