FINANCIAL ANALYSIS

Financial analysis is a very detailed examination of the financial and economic condition and results of a company's operations. It is performed on the basis of the financial statements: balance sheet, income statement, cash flow statement, statement of changes in equity, notes, trial balances, business records and so on.

The financial analysis provides a real objective insight into the financial situation of the company. The information obtained from the financial analysis is the starting point for taking measures and actions aimed at improving the solvency and trends in the business activities and development of the company.

 The financial analysis should provide answers, among others, to the following questions:

• What is the structure of the company's assets and its sources of financing?
• What is its liquidity and solvency?
• What is the current, and what the optimal, volume of inventories and working capital?
• What is the company's business performance like?
• How does the management finance investments ?
•  Is the company making a sufficient amount of profit?
• Which business and financial risks is the company exposed to?
• What is its indebtedness and financial stability?
• Where is the profitability breakpoint?

• Are the owners receiving a sufficient amount of funds on the basis of ownership?

The financial analysis shows the efficiency and effectiveness of financial policy. The results of the financial analysis are important for the formation of an adequate financial policy. Financial policy, as an integral part of the overall business policy of the company, is the basis for managing the company's finances. The financial management of the company is in charge of the financial policy.

Financial analysis can be conducted using different methods, and results in various financial indicators, which can be grouped into several basic groups: 

1.      Financial Structure Indicators 

2.      Liquidity indicators 

3.      Financial stability and security indicators 

4.      Net working capital (NOCs)

5.      Indebtedness indicators

6.      Indicators of activities:

7.      Income and expenditure structure indicators

8.      Business cost-effectiveness indicators

9.      Profitability indicators

10.  Revenue breakpoint

11.   Leverage

12.  Bankruptcy forecasts.