What Is The Purpose Of The Financial Analysis Of A Company

 

The financial analysis of companies is based on the study of accounting documents produced by companies. This includes analyzing in detail the tax package of a company (the tax package corresponds to the declaration of income of a company). 

What is the purpose of the financial analysis of a company?

The analysis aims first and foremost to better understand and interpret a company's figures in order to visualize its financial situation and help provide a better marketing plan. The solvency, liquidity, and profitability of a company are therefore analysed. It is commonly said that this is what “makes the numbers speak”.

The analysis allows:

 Organize or reorganize the various accounting elements;

 To reveal problems;

 To study the sector and the risks incurred by the company;

 To determine its ability to generate profits;

 Assess growth prospects;

 To study the formation of the result;

 Analyze the assets;

 Help in making the marketing plan;

 To measure profitability;

 To issue a financial diagnosis (i.e. an opinion on the financial health of the company).

Thus, the analysis generates an opinion on the financial health of the company, which can be positive or negative.

For whom is the financial analysis of a company useful?

The analysis is widely used internally, within companies themselves. This allows data to be analyzed to improve a company's financial performance. It is also widely used when companies decide to open their share capital to new investors.

Sometimes, financial analyzes can also be carried out by third parties to a company, i.e. externally. It is often other players in the same sector who carry out these analyzes to get an idea of the financial situation of a supplier, a customer, or even a competing company. For companies that work together, this makes it possible to ensure the partner's ability to pay, for example.

We also note that an analysis is almost systematically carried out during business takeover projects.

To carry out the analysis of a company, it is necessary to restate its accounting documents in order to bring out its financial situation. This is the financial diagnosis. Thus, the analysis is based on the balance sheet, the income statement, and the annexes of a company. These documents can be found in the annual accounts or in the tax return.

In addition to these analyses, some analysts initially focus on evaluating the entire economic sector of a company. They then focus on its positioning, strengths, weaknesses, and strategy. These data are then to be studied with an aspect more oriented on marketing than on accounting. This is called the economic diagnosis.

What is the benefit of outsourcing financial management?

The use of an external financial director may be the safest solution to avoid increasing the workload of internal employees. Expert and specialist in the function of CFO, he will save you from hiring a high-level full-time employee, which will save you on the payroll. In addition, an outsourced financial analysis will be able to focus more on the challenges of its function, namely: managing the cash flow, monitoring the accounts, planning the budget, and monitoring the company's financial forecasts.