13 steps to do Financial Analysis

13 steps to make financial analysis better...

Most of us have done financial analysis.

However, most of us also cut corners during the process.

This leads to a less insightful analysis, and often, it won't even be used.

How do you do financial analysis well?

Follow these 13 steps:

1. Financial statements
These documents are usually found in the company's annual reports or investor relations websites.

2. Business understanding
Understanding the context is essential for meaningful analysis.

3. Clean and organize data
Organize the data in a format that's easy to work with.

4. Calculate ratios
Liquidity Ratios, Profitability Ratios, Efficiency Ratios, and Solvency Ratios.

5. Analyze trends
Look for changes in revenue, expenses, profit margins, and other vital metrics.

6. Benchmarking
This can provide insights into how well the company performs relative to its competitors.

7. Assess profitability
Identify factors affecting profitability and discuss with various stakeholders how to address these factors.

8. Evaluate liquidity
Determine if the company has enough current assets to cover its current liabilities.

9. Cash flow analysis
Pay special attention to operating cash flow and free cash flow.

10. Recommend actions
For example, consider investing in the company, avoiding it, or holding onto existing investments.

11. Write a report
Use charts, graphs, and tables to illustrate key points.

12. Present analysis
Be prepared to explain your methodology and answer questions.

13. Update regularly
Financial analysis is ongoing; you must stay updated with market and competitor changes.