Financial analysis

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Financial analysis (also known as financial statement analysis, 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 and other techniques, 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:

• Continue or discontinue its main operation or part of its business;
• Make or purchase certain materials in the manufacture of its product;
• Acquire or rent/lease certain machineries and equipment in the production of its goods;
• Issue shares or negotiate for a bank loan to increase its working capital;
• Make decisions regarding investing or lending capital;
• Make other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.