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Financial Analysis

Autor:   •  December 6, 2011  •  Essay  •  319 Words (2 Pages)  •  1,939 Views

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Financial analysis has been a popular topic in business management and investment analysis. This is not surprising as there are much useful information can be obtained through financial analysis on a company. Generally speaking, from management perspective, financial analysis is useful to understand the performance of a particular business from different time frame and dimensions (Silbiger, 2005). The sources of profitability affecting the business can also be investigated. With proper financial analysis, it is possible for management to take corrective and proactive actions in improving the business or to sense imminent crisis in the future (Weygandt et. al., 1998). Besides, in the context of business management, financial analysis can be combined with other methods, for strategic management of a company. For this, financial analysis can contribute to the budgeting process, performance measurement and appraisal, the adoption of Balance Scorecard and setting of Key Performance Metrics for business divisions in an organization (Warren et. al., 1999). From another perspective, financial analysis is popular and useful for analyst or investors to understand the business fundamentals and performance of a particular company. Indeed, in analyzing potential investment candidates, financial analysis is widely performed by investors or equity analysts to gauge the financial health, prospects and risks pertaining to the investment target. It is an essential part of fundamental analysis in stock valuation. Specifically, the calculation of fair value for any stocks relies heavily on the usage of financial analysis and information available to the investment fraternity (Reilly & Brown, 2003). Indeed, it is also argued by certain researchers that financial analysis may provide reasonable chances for the investor to understand the prospects of a company, and hence make reasonably accurate prediction on the stock returns of a particular company in the future (Charitou et. al.,

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