Financial Analysis Method
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- Category: Politics: Economics
- Date Submitted: 11/03/2015 11:13 PM
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Financial Analysis methods
Financial analysis methods include a system of tools and methods to approach, study the facts, events, and relationships inside and outside, the movement and flow of financial change, the general financial indicators and details, to evaluate the financial situation of enterprises.
Commonly, there are various methods of financial analysis, but the following methods are often used.
a. Comparison method.
* Time – series: Comparison between the implementation of this period with the implementation of previous periods to see a clear trend in changings of corporate’s finance, evaluate the financial situation if it is improved or worsened in other to give the strategies for the next periods.
* Cross – sectional: Comparison between the implementation of this period with the average level of the industry or peers to evaluate if the financial situation now is in good or bad condition, better or worse than the others.
* Vertical Comparison (Common – size analysis): is a popular method of financial statement analysis that shows each item on a statement as a percentage of a base figure within the statement.
* Horizontal Comparison (Trend analysis): is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations. The statements for two or more periods are used in horizontal analysis. The earliest period is usually used as the base period and the items on the statements for all later periods are compared with items on the statements of the base period. The changes are generally shown both in dollars and percentage.
b. Ratios Analysis method.
* Using ratios to calculate the relative size of one number in relation to another. After calculating a ratio compare it to the same ratio calculated for a prior period, or that is based on an industry average, to see if the company is performing in...
Financial analysis methods include a system of tools and methods to approach, study the facts, events, and relationships inside and outside, the movement and flow of financial change, the general financial indicators and details, to evaluate the financial situation of enterprises.
Commonly, there are various methods of financial analysis, but the following methods are often used.
a. Comparison method.
* Time – series: Comparison between the implementation of this period with the implementation of previous periods to see a clear trend in changings of corporate’s finance, evaluate the financial situation if it is improved or worsened in other to give the strategies for the next periods.
* Cross – sectional: Comparison between the implementation of this period with the average level of the industry or peers to evaluate if the financial situation now is in good or bad condition, better or worse than the others.
* Vertical Comparison (Common – size analysis): is a popular method of financial statement analysis that shows each item on a statement as a percentage of a base figure within the statement.
* Horizontal Comparison (Trend analysis): is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations. The statements for two or more periods are used in horizontal analysis. The earliest period is usually used as the base period and the items on the statements for all later periods are compared with items on the statements of the base period. The changes are generally shown both in dollars and percentage.
b. Ratios Analysis method.
* Using ratios to calculate the relative size of one number in relation to another. After calculating a ratio compare it to the same ratio calculated for a prior period, or that is based on an industry average, to see if the company is performing in...