Chapter 4: Financial Analysis

Financial analysis is an important function in any business. It goes beyond profit margins and net income; it takes a look at how efficient every aspect of the business is as well as the company as a whole. In many cases, simple profitability is not enough, certain targets must be achieved. In other cases, a business might want to know where they stand compared to competitors and the industry as a whole.

Now that you have a better understanding of the value of your Financial Reports, we'll take a look at how they can work together as a set of integrated financial management tools. Financial Reports are not just something to show the bank or the government, they are a source of vital information that can help you make better business decisions. Don't avoid them. Learn to get comfortable with them, and then make them part of your management strategy.

The point of doing financial analysis is to analyze the performance of your business not just for a specific point in time, but over periods of time. These periods can then be compared to previous periods, allowing you to see how your entire business’ performance is improving or deteriorating. Proper financial analysis allows you to notice negative trends early on and to identify positive trends with the intention of finding the drivers of strong performance. Ultimately, financial analysis is a key part of the way you make important decisions for your business.