Financial Analysis

Introduction

Without an effective plan, there would always be contrasting difference in the performance and execution. Likewise, in relation to any business operations planning is important. One key perspective of the planning is the financial analysis in relation to the business.  What benefit does the financial analysis yield to the business? The answer is that it reinforces the control over the resources and operational performance of the organization. The control are meant to achieve the designed objectives of the business in accordance with the strategy and planning.

Financial Analysis and Management

The management of the organization that includes the personnel which are primarily and substantially responsible for the operations of the organization is also charged with the making of the financial analysis in relation to the organization or alternatively the specific project. They are entrusted with the investment (Equity) of the owners in the case of the sole proprietorship and shareholders in the case of the corporation. The management use that equity to purchase the resources to commence the operations of the organization to provide the final clientele of the organization the goods or the services as per the objectives of the organization. It is important to keep a check on the management so that they do not misappropriate the entrusted asses. Financial analysis is a primary method to keep that check and balance and thus control which lead to the achievement of the ultimate objectives.

In addition to keep a check on the management, Financial analysis help in the analysis in relation to the prospects of success of the business. The facets of the success prospects are operational performance, financial position, Changes in equity and evaluation of the cash flows over the course of the time period time period.

Method of Financial Analysis

One of the important and globally practiced methods of the financial analysis is the ratio analysis. The other notable methods are the trends analysis and common sized financial statement. Each of the aforementioned method is used to assess if the Business is improving in financial terms in comparison to the previous years, other industries. In case of any red flag reported by any of the metric of any specific method of the financial analysis, the corrective measures can be implemented which would realign the operations of the organization as per designed strategy and planning and thus help in the achievement of the objectives.

Business Plan

Business Plan is a typical example of the financial analysis. Business plan is made before the formal start-up of the Business. The financial analysis is mostly based on the forecasting analysis owing to the fact that the business has not yet formally commenced its operations. The financial analysis pertaining to the future operations let the organization to manage its expenditure to be incurred and the sources and extent of revenue, additional funding and thus help in the streamlining of the operational activities along with the mitigation of the risk of discontinuation of the business owing to the financial difficulties.

Conclusion

Financial analysis is the key to the long-term sustainability of the business. The management of the organization that includes the personnel which are primarily and substantially responsible for the operations of the organization and are entrusted with the financial resources. It is important to analyze their operational efficiency which subsequently will translated into the operational success of the organization which again is measured using the key metrics provided by the financial analysis methods of ratio analysis, trend analysis and common-sized financial statements ensuring the sustainability of the business in the long-term.