Financial analysis

Financial analysis (also referred to as financial statement analysis or accounting analysis or Analysis of finance) refers to an assessment of the viability, stability and profitability of a business, sub-business or project.

It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Financial analysis may determine if a business will:

Financial statement analysis

Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of retained earnings. Financial statement analysis is a method or process involving specific techniques for evaluating risks, performance, financial health, and future prospects of an organization.

It is used by a variety of stakeholders, such as credit and equity investors, the government, the public, and decision-makers within the organization. These stakeholders have different interests and apply a variety of different techniques to meet their needs. For example, equity investors are interested in the long-term earnings power of the organization and perhaps the sustainability and growth of dividend payments. Creditors want to ensure the interest and principal is paid on the organizations debt securities (e.g., bonds) when due.

Financial ratio

A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.

Analysis

Analysis is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. The technique has been applied in the study of mathematics and logic since before Aristotle (384–322 B.C.), though analysis as a formal concept is a relatively recent development.

The word comes from the Ancient Greek ἀνάλυσις (analysis, "a breaking up", from ana- "up, throughout" and lysis "a loosening").

As a formal concept, the method has variously been ascribed to Alhazen,René Descartes (Discourse on the Method), and Galileo Galilei. It has also been ascribed to Isaac Newton, in the form of a practical method of physical discovery (which he did not name).

Applicants

Chemistry

The field of chemistry uses analysis in at least three ways: to identify the components of a particular chemical compound (qualitative analysis), to identify the proportions of components in a mixture (quantitative analysis), and to break down chemical processes and examine chemical reactions between elements of matter. For an example of its use, analysis of the concentration of elements is important in managing a nuclear reactor, so nuclear scientists will analyze neutron activation to develop discrete measurements within vast samples. A matrix can have a considerable effect on the way a chemical analysis is conducted and the quality of its results. Analysis can be done manually or with a device. Chemical analysis is an important element of national security among the major world powers with materials measurement and signature intelligence (MASINT) capabilities.