A financial analysis assists in identifying the major strengths and weaknesses of a business enterprise. It indicates whether a firm has enough cash to meet obligations; a reasonable accounts receivable collection period; an efficient inventory management policy; sufficient plant, property, and equipment; and an adequate capital structure —all of which are necessary if a firm is to achieve the goal of maximizing shareholder wealth. Financial analysis can also be used to assess a firm’s viability as an ongoing enterprise and to determine whether a satisfactory return is being earned for the risks taken.
When performing a financial analysis, an analyst may discover specific problem areas in time for remedial action. For example, an analyst may find that a firm has unused borrowing power that could finance additional income-producing assets. The results of a financial analysis may indicate facts and trends that can aid the financial manager in planning and implementing a course of action consistent with the goal of maximizing shareholder wealth.
Financial analyses are also used by persons other than financial managers. For example, credit managers may examine basic financial ratios of a prospective customer when deciding whether to extend credit. Security analysts use financial analysis to help assess the investment worth of different securities. Bankers use the tools of financial analysis when deciding whether to grant loans. Financial ratios have been used successfully to forecast such financial events as impending bankruptcy. Unions refer to financial ratios when evaluating the bargaining positions of certain employers. Finally, students and other job hunters may perform financial analyses of potential employers to determine career opportunities.
Financial Management Related Interview Questions
|Financial Planning Interview Questions||Financial Accounting Interview Questions|
|Cost Accounting Interview Questions||Management Accounting Interview Questions|
|Financial Statement Interview Questions||Corporate Finance Interview Questions|
|Financial Analyst Interview Questions||Financial Services Interview Questions|
Financial Management Tutorial
The Role And Objective Of Financial Management
The Domestic And International Financial Marketplace
Evaluation Of Financial Performance
Financial Planning And Forecasting
The Time Value Of Money
Risk And Return On At&t Common Stock
Fixed-income Securities: Characteristics And Valuation
Common Stock: Characteristics,valuation, And Issuance
Capital Budgeting And Cash Flow Analysis
Capital Budgeting: Decision Criteria And Real Option Considerations
Capital Budgeting And Risk
The Cost Of Capital
Capital Structure Concepts
Capital Structure Management In Practice
Working Capital Management
The Management Of Cash And Marketable Securities
Management Of Accounts Receivable And Inventories
Lease And Intermediate-term Financing
Financing With Derivatives
Internationan Financial Management
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