subject: Financial analysis: most crucial method to predict market [print this page] No one can predict market and companys future just merely looking at few financial statements; you always needs in depth analysis of industry, sector, different companies and environment. Different internal factors and volatile market conditions forced investors and planners to give more emphases on research and analysis of micro and macro economic conditions. The objective is to predict future disasters and prepare you for these disasters and avail upcoming opportunities. To predict the business trends and evaluate these trends with other business, in similar industry or compare your performance with industry bench marks; we do financial analysis.
There are different methods of financial analysis; some of them are as follows:
Horizontal analysis:
Techniques of financial statement analysis normally engage comparing particular information. The horizontal analysis put side by side particular items over a number of accounting periods. One process of doing a horizontal financial statement analysis compares the total dollar amounts of particular items over a period of time. The other method of doing horizontal financial statement analysis compares the percentage difference in certain accounts over a period of time.
Vertical analysis:
The vertical analysis put side by side each separate figure to one precise figure in the financial statement. The values are reported as a percentage. This technique put side by side numerous items to one certain item in the similar accounting period or some times several accounting period.
Ratio analysis:
The second significant method is ratio analysis. It is best when you assess link between two or more accounts in your financial statements. There are four key categories of financial ratios:
Profitability ratios
Operational ratios
Liquidity or solvency ratios
Efficiency or productivity ratios No one can predict future, but we can get closer through our research and analysis. If we do proper and in-depth analysis of our environment; we can predict future changes to some extend. This financial analysis helps us to predict future happenings and we can take measures to prevent negative changes and similarly, we can avail any possible opportunity.
Financial analysis: most crucial method to predict market
