Financial analysis in business practice can be understood as an analysis of economic activities whose primary objective is to investigate the financial health of the company. Those analysis usually use accounting and statistical information from the distant or immediate past. There are used current trends and in some cases prediction. Financial analysis interprets financial information and assessing performance and outlook of the company.
Generally, the financial analysis of companies financial health has to recognize and identify its weaknesses that could cause in smaller or bigger problems in the future, and vice versa to determine its strengths, on which could in the future be based the business. About the financialy healthy company can we talk only if it has no problems with its ability to settle debts on time. Financial health is affected by liquidity and profitability of the company
Financial analyst progresses like a doctor examining a patient unknown to him. Like a doctor making medical history of the patient from historical information, financial analyst examines history of the company from the historical information available in the financial statements, and annual reports.
The second step is the examination of the current medical condition of the patient and the diagnosis. Financial Analyst by analogy examines current information and try to identify the current condition in which the company is. Besides trying to figure out the reasons why there has been improvement or deterioration of financial health.
Financial analysis is an essential part of companies financial management. It gives us information about company ability to raise / allocate capital and distribute profits.
The company neglecting financial analysis is like the vehicle without the dasboard.