The Concept of Financial Analysis

Financial analysis is the assessment of business entities, projects, budgets, and forecasts from a financial perspective by analyzing the data from financial statements.

The main purpose is to check the effectiveness of funds employed in the firm by analyzing the efficiency of operations and financing activities using a data-backed approach. Analysis plays a catalyst role in decision making related to investing and financing activities. This interpretation of financial statements helps to understand the characteristics of important operational and financial activities undertaken by the organization. The process involves financial ratio analysis and interpretation of financial statements. Methodological classification of data for simplification of given financial data represents the analysis part. The explanation of the simplified data and its utility for the organization represents the financial data interpretation part.