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Siu - Feb - 3 Finance Essentials For Business

The document discusses the key components of financial analysis including different types of analysis such as vertical, horizontal, leverage, growth rates, profitability, liquidity, efficiency, cash flow, rates of return, and valuation analysis. It also discusses scenario and sensitivity analysis, variance analysis, and best practices for financial analysis.

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Andrea Mireylla Romero Mori
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9 views19 pages

Siu - Feb - 3 Finance Essentials For Business

The document discusses the key components of financial analysis including different types of analysis such as vertical, horizontal, leverage, growth rates, profitability, liquidity, efficiency, cash flow, rates of return, and valuation analysis. It also discusses scenario and sensitivity analysis, variance analysis, and best practices for financial analysis.

Uploaded by

Andrea Mireylla Romero Mori
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FINANCE ESSENTIALS FOR

BUSINESS
Session 3
INTRODUCTORY ACTIVITY

What are the key components of financial analysis,


and how do they help organizations make informed
decisions?

How can financial analysis be used to evaluate the


performance of a company, and what metrics are
typically used in this process?

What are some common challenges that


organizations face when conducting financial analysis,
and how can they overcome these obstacles to
ensure accurate and reliable results?
Melissa Shirah. (2020). Intro to Financial Analysis.[Video
file]. Watch the video here.
WHAT IS FINANCIAL ANALYSIS?

Financial analysis involves using financial data to assess a


company’s performance and make recommendations about
how it can improve going forward.

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

1. Vertical Analysis

This type of financial analysis involves looking at various


components of the income statement and dividing them by
revenue to express them as a percentage.

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

2. Horizontal Analysis

It involves taking several years of financial data and comparing


them to each other to determine a growth rate.

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

3. Leverage Analysis

It is one of the most common methods analysts use to evaluate


company performance.

Do you know any examples of ratios?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

4. Growth Rates

Analyzing historical growth rates and projecting future ones are a


big part of any financial analyst’s job.

Do you know any examples of analyzing growth?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

5. Profitability Analysis

It is a type of income statement analysis where an analyst


assesses how attractive the economics of a business are.

Do you know any examples of profitability measures?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

6. Liquidity Analysis

This is a type of financial analysis that focuses on the balance


sheet, particularly, a company’s ability to meet short-term
obligations (those due in less than a year).

Do you know any examples of liquidity analysis?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

7. Efficiency Analysis

Efficiency ratios are an essential part of any robust financial


analysis. These ratios look at how well a company manages its
assets and uses them to generate revenue and cash flow.

Do you know any examples of efficiency ratios?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

8. Cash Flow

As they say in finance, cash is king, and, thus, a big emphasis is


placed on a company’s ability to generate cash flow.

Do you know any examples of cash flow analysis?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

9. Rates of Return

At the end of the day, investors, lenders, and finance professionals,


in general, are focused on what type of risk-adjusted rate of return
they can earn on their money.

Do you know any examples of return measures?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

10. Valuation Analysis

The process of estimating what a business is worth is a major


component of financial analysis, and professionals in the industry
spend a great deal of time building financial models in Excel.

What do valuation approaches include?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

11. Scenario & Sensitivity Analysis

Budgeting allows you to chart your organization’s path and assist


your management team with strategic business planning.

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

12. Variance Analysis

Variance analysis is the process of comparing actual results to a


budget or forecast. It is a very important part of the internal
planning and budgeting process at an operating company,
particularly for professionals working in the accounting and
finance departments.

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
TYPES OF FINANCIAL ANALYSIS

13. Financial Analysis Best Practices

All of the above methods are commonly performed in Excel using


a wide range of formulas, functions, and keyboard shortcuts.
Analysts need to be sure they are using best practices when
performing their work, given the enormous value that’s at stake
and the propensity of large data sets to have errors.

What includes the best practices?

(American Academy of Financial Management, s. f.; Corporate Finance


Institute, 2023; Shirah, 2020)
CONCLUSIONS

Finance Essentials for Business is a critical topic for any


organization looking to achieve long-term financial success.

The three subtopics of financial statements, budgeting and


forecasting, and financial analysis are all essential
components of effective financial management.

Financial statements provide a clear snapshot of a company's


financial health, while budgeting and forecasting allow for
strategic planning and resource allocation.

Financial analysis, in turn, enables organizations to evaluate


their performance, identify areas for improvement, and make
informed decisions about future investments and
expenditures.
REFERENCES

American Academy of Financial Management. (s. f.). American Academy


of Financial Management. Read full text here.

Corporate Finance Institute. (2023, February 16). Types of Financial


Analysis. Corporate Finance Institute Resources. Read full text here.

Melissa Shirah. (2020). Intro to Financial Analysis.[Video file]. Watch


the video here.

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