How to do a financial analysis
Just as doing a SWOT analysis is one of the essential keys to improve the performance of our company, it is also important and advisable to carry out a financial analysis. In this way, we can control the economic situation and position in the company's market, in order to determine our business strategies. In this article of .com we will expose some simple steps to know how to do a financial analysis.
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Doing a financial analysis allows us to obtain information on the economic and financial situation of the company, in such a way that it guides us to decide which strategies to take in the short and long term. Since it is a financial analysis, we will use the accounting books of the company as instruments, such as the balance sheet or the profit and loss account.
It is important to know that we have two ways to perform the financial analysis:
- Vertical analysis: we analyze the status of the company's accounts at a specific moment in time, which must be the same in all of them.
- Horizontal analysis: we compare the situation of the accounts between two different time periods, with each period being the same for all the accounts.
First, it is important to calculate the different financial ratios to verify that the results are within the limits that indicate that the company is healthy. These ratios are:
- Liquidity ratio
- Debt ratio
- Profitability ratios
- Management ratios
Carry out an exhaustive control of all the creditors of the company that appear in the liabilities of the accounting balance, in such a way that we know if they are private companies or public entities, the amount of debt that we have to face and when the expiration of the this debt.
In the income statement we will have to verify that we are obtaining an income according to what was expected in that period of time. Also, that the expenses that we have incurred are those that were planned, as well as analyzing which of them are dispensable for the future.
To know if the projects that we have undertaken and that are in operation, are giving the expected results, we can calculate the Net Present Value and the Internal Rate of Performance.