ANALYSIS

Financial analysis (also referred to as financial statement analysis or

accounting analysis or Analysis of finance) refers to an assessment of the
viability, stability and profitability of a business, sub-business or project

Comparing financial ratios is merely one way of conducting financial analysis. Financial ratios
face several theoretical challenges:

They say little about the firm's prospects in an absolute sense. Their insights about
relative performance require a reference point from other time periods or similar firms.

One ratio holds little meaning. As indicators, ratios can be logically interpreted in at least
two ways. One can partially overcome this problem by combining several related ratios to
paint a more comprehensive picture of the firm's performance.

Seasonal factors may prevent year-end values from being representative. A ratio's values
may be distorted as account balances change from the beginning to the end of an
accounting period. Use average values for such accounts whenever possible.

Financial ratios are no more objective than the accounting methods employed. Changes
in accounting policies or choices can yield drastically different ratio values.

Fundamental analysis.[1]

Financial analysts can also use percentage analysis which involves reducing a series of figures as
a percentage of some base amount.[2] For example, a group of items can be expressed as a
percentage of net income. When proportionate changes in the same figure over a given time
period expressed as a percentage is known as horizontal analysis.[3] Vertical or common-size
analysis, reduces all items on a statement to a common size as a percentage of some base value
which assists in comparability with other companies of different sizes.[4] As a result, all Income
Statement items are divided by Sales, and all Balance Sheet items are divided by Total Assets.[5]
Another method is comparative analysis. This provides a better way to determine trends.
Comparative analysis presents the same information for two or more time periods and is
presented side-by-side to allow for easy analysis.[6]
Business valuation is a process and a set of procedures used to estimate the
economic value of an owners interest in a business. Valuation is used by financial
market participants to determine the price they are willing to pay or receive to
effect a sale of a business. In addition to estimating the selling price of a business,
the same valuation tools are often used by business appraisers to resolve disputes
related to estate and gift taxation, divorce litigation, allocate business purchase
price among business assets, establish a formula for estimating the value of
partners' ownership interest for buy-sell agreements, and many other business and
legal purposes such as in shareholders deadlock, divorce litigation and estate
contest.[1] In some cases, the court would appoint a forensic accountant as the joint
expert doing the business valuation

ANALYSIS

Fundamental analysis of a business involves analyzing its financial statements and health, its
management and competitive advantages, and its competitors and markets. When applied to
futures and forex, it focuses on the overall state of the economy, and considers factors including
interest rates, production, earnings, employment, GDP, housing, manufacturing and management.
When analyzing a stock, futures contract, or currency using fundamental analysis there are two
basic approaches one can use; bottom up analysis and top down analysis.[1] The term is used to
distinguish such analysis from other types of investment analysis, such as quantitative analysis
and technical analysis.
Fundamental analysis is performed on historical and present data, but with the goal of making
financial forecasts. There are several possible objectives:

to conduct a company stock valuation and predict its probable price evolution,

to make a projection on its business performance,

to evaluate its management and make internal business decisions,

to calculate its credit risk.