Highlighting the importance of financial analysis we can mention the following points:
It is an instrument that allows planning financial projections based on reliable data .
Facilitates the process of creating a business diagnosis.
It helps to understand the temporal evolution of the entity being analyzed.
It allows for comprehensive monitoring and control of the company.
It serves as a basis for decision-making by internal or external agents.
It makes it possible to analyze the viability of a company to compare it with other entities or sectors.
Methods of financial analysis
There are 2 methods or tools that will benin phone data help you carry out correct management control and financial analysis within your online business or company:
Let's see in detail what they are and how they are carried out:
1. Vertical analysis
Vertical analysis , also called structural analysis , is a technique that allows us to know the percentage weight of each item that corresponds to the financial statements of a company in a given period of time.
How to perform a vertical analysis?
The formula for performing a vertical analysis is as follows:
AV = Value of each item / Total of the group to which it belongs × 100
Now, you can do this procedure in a spreadsheet. The first thing you have to do is divide each item to be analyzed by the total of the group to which it belongs. Then, multiply it by 100.
Also, keep in mind that the items of the asset groups go in the numerator (assets, rights and obligations that form part of the assets of a company). And the assets go in the denominator (grouping of homogeneous economic and financial elements that have similar characteristics).
2. Horizontal analysis
Horizontal analysis , also known as dynamic analysis , allows you to calculate the absolute and relative variation that the balance sheet items have had in two consecutive time periods.
How to perform a horizontal analysis?
The formula for performing a horizontal analysis is as follows:
Rate of change = Value in year 2 / Value in year 1 -1 × 100
To perform this calculation you will need the balance sheet or income statement for 2 years. Then, with the help of specific software or a spreadsheet, add two columns to your document.
The first column is the difference between the last year and the previous one, while the second is a rate of change.