Just as doing a SWOT analysis is one of the essential keys to improve the performance of our company, it is also important and advisable to carry out a financial analysis. In this way, we can control the economic situation and position in the market of the company, in order to determine our business strategies. In this article we will explain some simple steps to know how to do a financial analysis.

Steps to follow:

1. Doing a financial analysis allows us to obtain information on the economic and financial situation of the company, in such a way that it guides us to decide which strategies to take in the short and long term. Since it is a financial analysis, we will use the company’s accounting books as instruments, such as the balance sheet or the profit and loss account.

2. It is important to know that we have two ways to perform financial analysis:

  • Vertical analysis: we analyze the status of the company’s accounts at a specific moment in time, which must be the same in all of them.
  • Horizontal analysis: we compare the situation of the accounts between two different periods of time, each period being the same for all accounts.

3. In the first place, it is important to calculate the different financial ratios, to verify that the results are within the limits that indicate that the company is healthy. These ratios are:

  • Liquidity ratio
  • Debt ratio
  • Profitability ratios
  • Management ratios

4. Carry out an exhaustive control of all the company’s creditors that appear in the liabilities of the accounting balance, in such a way that we know if they are private companies or public entities, the amount of debt that we have to face and when the maturity of this debt.

5. In the income statements we will have to verify that we are obtaining income according to what was planned in that period of time. Also, that the expenses we have incurred are those that were planned, as well as analyzing which of them are dispensable for the future.

6. To know if the projects that we have undertaken and that are in operation are giving the expected results, we can calculate the Net Present Value and the Internal Rate of Return.

LEAVE A REPLY

Please enter your comment!
Please enter your name here