Financial Analysis

AAA

DEFINITION of 'Financial Analysis'

The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance.

INVESTOPEDIA EXPLAINS 'Financial Analysis'

One of the most common ways of analyzing financial data is to calculate ratios from the data to compare against those of other companies or against the company's own historical performance. For example, return on assets is a common ratio used to determine how efficient a company is at using its assets and as a measure of profitability. This ratio could be calculated for several similar companies and compared as part of a larger analysis.

RELATED TERMS
  1. Return On Assets - ROA

    An indicator of how profitable a company is relative to its total ...
  2. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  3. Cash Flow Statement

    One of the quarterly financial reports any publicly traded company ...
  4. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  5. Income Statement

    A financial statement that measures a company's financial performance ...
  6. Risk

    The chance that an investment's actual return will be different ...
Related Articles
  1. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  2. Bonds & Fixed Income

    Evaluating A Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  3. Investing

    Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  4. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  5. Charts & Patterns

    Why These Could Be 2015's 10 Best Biotech Stocks

    A quick look at a 10 biotech companies that are poised to deliver for shareholders in 2015.
  6. Mutual Funds & ETFs

    How To Build A Bond Ladder?

    Bond laddering is a strategy used when building a portfolio: an investor can spread out interest rate risk and create a stream of cash flows for income.
  7. Charts & Patterns

    Why These Could Be 2015's 10-Best Media Stocks

    A list of top-tier and speculative media stocks for 2015.
  8. Investing

    Why Is The Nasdaq 5,000 Different This Time?

    The Nasdaq this week has slipped below the 5,000 high-water mark it reached last week. The last time it hit above 5,000 was in March 2000.
  9. Charts & Patterns

    Why These Could Be 2015's 10-Best Pharma Stocks

    The pharmaceutical stocks covered here have significant potential going forward. Here's why.
  10. Charts & Patterns

    Why These Are 2015's 10-Best Financial Stocks

    If you're going to invest in the financial stocks, these names need to be on your radar.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center