6 Easy Steps to Write a Financial Analysis Report
Financial analysis report writing is more complex than it sounds. An economic analysis entails assessing projects, budgets, and other financial-related entities inside a company or asset. Any financial analysis should incorporate critical components. Only after thoroughly analyzing all of the features can a conclusion on the company’s financial health be reached.
Here’s a step-by-step tutorial that covers all of the components of a financial analysis report.
Why Is It Necessary to Write a Financial Analysis Report?
Financial analysis is a document that includes information on a company’s financial health. Analyzing the company’s financial performance and position are also covered. Corporate finance aids the finance manager in determining the company’s efficiency and managerial effectiveness. A financial analysis paper also assists lenders, investors, and financial analysts determine if a company can provide a satisfactory return on investment.
Finance students must learn about the many finance theories and how to apply them correctly. Considering the complexity of the task, students tend to send “write my report” requests to get help resulting in a polished finance analysis paper written by expert writers.
6 Steps For Writing a Financial Analysis Report
Every financial expert must understand how to assess a company’s financial statements correctly. This necessitates a grasp of three crucial areas:
- The financial statement structure;
- Economic features of the industry in which the business competes;
- The methods employed by the firm to distinguish itself from its rivals.
Let’s get right to work now that you have a basic understanding of financial accounting and reporting. Do you want a quick and easy way to create a financial analysis report?
In general, there are 6 steps to producing an efficient financial statement analysis.
1. Determine the Economic Characteristics of the Industry
First, do a value chain analysis for the industry — the chain of activities involved in developing, manufacturing, and distributing the firm’s goods and services. Techniques such as Porter’s Five Forces analysis or economic attribute analysis are commonly employed in this stage.
2. Define Company Strategies
Next, consider the type of the product/service being supplied by the company, such as the originality of the product, the degree of profit margins, the formation of brand loyalty, and cost control. Factors including supply chain integration, geographic diversity, and sector diversification should also be addressed.
3. Evaluate the Financial Statements of the Firm
Examine the major financial statements in light of the applicable accounting rules. Issues like recognition, value, and categorization are critical in evaluating balance sheet accounts. The key concern should be if this balance sheet accurately depicts the firm’s economic condition. The fundamental goal of assessing the income statement is to accurately analyze the quality of profits as a full picture of the firm’s economic performance.
The analysis of the statement of cash flows aids in understanding the influence of the firm’s liquidity position from its operations, investments, and financial activities during the period where the money came from, where it went, and how the firm’s total liquidity was affected.
4. Evaluate Your Current Profitability and Risk
This is the stage at which financial specialists may genuinely offer value to the firm’s and its financial statements’ assessment. Key financial statement ratios about liquidity, asset management, profitability, debt management/coverage, and risk/market valuation are often used analytical tools.
Regarding profitability, two main concerns must be addressed: how lucrative the business’s activities are relative to its assets — regardless of how the organization funds those assets — and how successful the company is from its equity owners’ standpoint.
It’s also critical to understand how to deconstruct return measurements into key effect elements. Finally, all financial statement ratios must be analyzed comparatively, comparing current ratios to previous periods or comparable businesses or industry averages.
5. Preparation of Projected Financial Statements
Financial experts must make reasonable predictions about the firm’s (and industry’s) future and evaluate how these assumptions will influence cash flows and funding, which may be difficult. Pro-forma financial statements, based on approaches like the percent of sales methodology, are frequently used.
6. Appreciate the Firm
While there are several methods for valuing a business, the most popular is a form of discounted cash flow analysis. These cash flows might take the shape of expected dividends or more specific methods such as free cash flows to equity holders or on an enterprise level. Relative valuation or accounting-based measurements such as economic value added are two more options.
7. Final Thoughts
You can proceed to the last section of the report after a comprehensive analysis of the firm and its financial situation. This part is where you offer your final thoughts on the firm and whether it’s profitable or not. Make sure that all of your conclusions are supported by solid facts, accounting, and financial theories.
Financial reporting is the process of providing critical economic indicators to internal and external stakeholders regarding the company’s financial health. They’re used by professionals investing in small firms to evaluate their performance. They look at financial accounts from the past and present to assess investment expectations and worth.
Financial analysis may also assist small business owners in weighing the impact that financial decisions may have on their firm. If you’re thinking about borrowing money to launch a new product, your financial analysis can show you how much you’ll need, how successful comparable goods have been in the past, and what you can expect from the launch.