WHAT IS FINANCIAL ANALYSIS

Financial analysis is the examination of financial information to reach business decisions. This analysis typically
involves an examination of both historical and projected profitability, cash flows, and risk. It may result in the
reallocation of resources to or from a business or a specific internal operation.

Sources of Analysis Information

The key source of information for financial analysis is the financial statements of a business. The
financial analyst uses these documents to derive ratios, create trend lines, and conduct comparisons against
similar information for comparable firms.

Financial Analysis Outcomes

The outcome of financial analysis may be any of these decisions:

 Whether to invest in a business, and at what price per share.

 Whether to lend money to a business, and if so, what terms to offer.
 Whether to invest internally in an asset or working capital, and how to finance it.

Financial analysis is one of the key tools needed by the managers of a business to examine how their
organization is performing. For this reason, they are constantly querying the financial analyst about the profitability,
cash flows, and other financial aspects of their business.

What is Budgeting? What is a Budget?

Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating
this spending plan allows you to determine in advance whether you will have enough money to do the things you need
to do or would like to do. If you don't have enough money to do everything you would like to do, then you can use this
planning process to prioritize your spending and focus your money on the things that are most important to you.

Why is Budgeting so Important?

Since budgeting allows you to create a spending plan for your money, it ensures that you will always
have enough money for the things you need and the things that are important to you. Following a budget or
spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt.

Budgeting is simply balancing your expenses with your income. If they don't balance and you spend more than
you make, you will have a problem. Many people don't realize that they spend more than they earn and slowly sink
deeper into debt every year.

Financial Forecasting

Financial forecasting estimates a company's future financial outcomes by examining historical data. Financial
forecasting allows management teams to anticipate results based on previous financial data.
Characteristics of financial forecasting include:
  Used to determine how companies should allocate their budgets for a future period. Financial
forecasting does not analyze the variance between financial forecasts and actual performance.
 Regularly updated, perhaps monthly or quarterly, when there is a change in operations, inventory,
and business plan
 Can be created for both the short-term and long-term. For example, a company might have
quarterly forecasts for revenue. If a customer is lost to the competition, revenue forecasts might
need to be updated.
 A management team can use financial forecasting and take immediate action based on the
forecasted data.

Financial forecasting can help a management team make adjustments to production and inventory levels.
Additionally, a long-term forecast might help a company's management team develop its business plan.

WHAT IS CASH MANAGEMENT?

In a banking institution, the term Cash Management refers to the day-to-day administration of managing cash
inflows and outflows. Because of the multitude of cash transactions on a daily basis, they must be managed. The
ultimate goal of cash management is to maximize liquidity and minimize the cost of funds.

WHY IS CASH MANAGEMENT IMPORTANT IN BUSINESS?

When it comes to creating and sustaining a company’s financial stability, cash management is a key
component. Since “cash” is the primary asset used to pay obligations (whether you’re an individual or company),
it must be managed accordingly to maximize earnings. This impacts future growth for the company. Maintaining
cash balances while earning a return on idle cash are also top concerns.

For businesses, the cash flow statement is a central component of cash flow management.