Financial Analysis is a process of analyzing, comparing and comprehending the financial information of the business to take important financial decisions. There are a number of situations in which we implement financial analysis process within a business. One of the key situations is that when an external investor wants to invest some money in the business he will first review the financial information of the business including financial statement of the business and disclosures. The investor will get the adequate information through ratio analysis that whether a company is liquid enough to fulfill all its liabilities and is generating enough cash flow to keep the operations running. With the help of the information published in the financial statements the investor can also generate trend lines regarding the future performance of the business.
In addition to the external investor financial analysis can also help internal investors to take investment related decisions regarding the business. Financial analysis helps internal investor to review the financial statements in order to find out the future cash generation within the business and helps in calculating that whether the cash outflows from a certain project are going to generate revenues or not.
The key sources to conduct financial analysis of a business are the financial statements of the business. Financial statements are used to calculate ratios, obtain trend lines and in conducting a comparison between the various firms that deal in the same business. The major outcomes of conducting a financial analysis are whether to invest in a given business or not and if investing in the business than what will be the price per share.
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