what is analysis in finance?

What is Analysis in finance?

Learn about Analysis with Katrina Kaif
Namastey London 2007

The scene shows Jazz (played by Katrina Kaif) who is looking for a prospective husband. She meets a man (played by Vir Das) who wants to analyze the compatibility between the two before getting married. He suggests they both should watch a movie and ascertain their sense of humor by finding what makes them laugh during the movie. Then through the findings and a flowchart, they might be able to understand compatibility.

In this blog, Learning perspectives will explore the meaning of analysis.

What is Analysis in finance?

Analysis means breaking down a complex subject to understand it. An analysis is used most commonly with research & finance. It is also conducted in applied mathematics, science, and chemistry.

Broadly analysis can be classified as quantitative and qualitative. Quantitative methods involve measurement through numbers, statistics, and figures while qualitative method deals with observations, recording, opinions, experiences, etc.

Types of Analysis in finance:

There can be many types of analysis. Analysis in finance is conducted to understand the financials of a company. They are also used for stock markets, variance in budgeting & forecasting. Technical and price analysis is conducted to predict prices and the movement of securities. Variance analysis is used to gauge the difference between budgeted and actual figures in a business.

Analysis of financial statements starts with scrutinizing the profit and loss account and then inspecting the balance sheet. The balance sheet is based on the accounting equation:

Assets = Liabilities + Shareholder’s Equity.

An income Statement, on the other hand, shows a company’s revenues and expenses. The top line of the Company is the Sales of the company while the bottom line of the company is the Net Income or Net Profit. Expenses are generally the costs that have been incurred for the operations of the company.

Ratio Analysis, trend analysis, and Vertical analysis are some ways that help in interpreting financials.

YouTube video
Understand Analysis with a Video

Interpreting financials is done by looking at every line item in the balance sheet and Income Statement to figure out what impact would it have on the Company.

Types of Analysis

How does financial Analysis help?

Financial Analysis helps in evaluating projects, business opportunities, and financial statements. With the help of this analysis, one can estimate profitability, liquidity, and fundamental aspects of the organization.

This analysis helps organizations to make good decisions. Fund managers and investors also get a detailed analysis to understand whether to invest in the company or not.

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