Articles

Advantages and disadvantages of budgeting

Benefits of planning/budgeting increases the probability that the company goals and objectives will be achieved helps in defining strengths and weaknesses on which the entity can concentrate problems can be anticipated and avoided by possible remedial action (doing so after the problem crystali

Can financial analysis by itself evaluate financial health of the entity?

Financial analysis significantly helps evaluate the company's financial situation. However, it is necessary evaluate other information as well. This information can include: Internal information: the notes to the financial statements tax situation of the company (tax returns) events

Benchmarks in financial analysis

Calculated values ​​can be compared with: recommended values historical development - with previous years or the average over a certain period budget or plan competitive company sectoral or national average other parts of the entity, other companies within a group or groups of entities

Methods of financial analysis and its indicators

Classification of financial analysis methods according to the objects covered: horizontal analysis vertical analysis   Methods of financial analysis according to the calculation method: analysis of absolute indicators analysis of differential indicators analysis of financial ratios

Horizontal analysis

Horizontal analysis is the method of financial analysis, which shows the changes (ratio or difference) of the same item over time (e.g. a comparison of total assets at the end of the reporting period compared to the end of the previous year).   It is possible to compare to: the previous pe

Basic groups of financial analysis indicators

profitability indicators liquidity indicators activity indicators indicators of financial structure and indebtedness market value or capital market indicators group of indicators for broader company analysis

Who prepares financial analysis

Financial analysis is usually performed: internally – by the employee of the entity (financial analyst, financial manager, controller, financial analyst, accountant etc.). externally: banks or other financial institutions – their evaluation usually results in decision whether to

Basic steps during preparation of financial analysis

  1. Setting the objectives and users of financial analysis - to make it clear what will be its main focus. 2. Selection the appropriate methods and indicators. There is a wide range of indicators and some are used more than others. However, it is certainly not desirable to calculate and anal

Common problems with financial analysis

Problems with inputs that will influence also the quality of the output from the financial analysis: financial statements are prepared with a certain time lag (usually up to 6 months), the current situation can already be different financial statements include the results of ad-hoc transactions

Vertical analysis

Vertical analysis is the method of financial analysis, which is used to calculate the ratio of certain item on a summary item, for example % of inventories on current or total assets.

Methods of financial analysis according to the calculation

Analysis of absolute indicators Analysis of absolute indicators is used to assess the absolute level of various items, e.g. the amount of assets, equity and debt capital, profit, revenue, number of employees, etc. It is used primarily to compare the size of the monitored companies with other compan

Profitability indicators

Profitability is defined as the ability to achieve profit by using various resources. Profitability indicators form one group of financial analysis, which are used to evaluate profitability and efficiency of the company management, i.e. the company's ability to produce maximum output (i.e. marg

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