FINANCIAL ANALYSIS

TECHNIQUES
Group 4
CONTENTS
1. Introduction 5. Equity Analysis
2. The Financial Analysis Process
5.1. Valuation Ratios
2.1. The Objectives of the Financial Analysis Process
2.2. Distinguishing between Computations and Analysis 5.2. Industry-Specific Ratios
3. Analysis Tools and Techniques 5.3. Research on Ratios in Equity Analysis
3.1. Ratios 6. Credit Analysis
3.2. Common-Size Analysis
6.1. The Credit Rating Process
3.3. The Use of Graphs as an Analytical Tool
3.4. Regression Analysis 6.2. Research on Ratios in Credit Analysis
4. Common Ratios Used in Financial Analysis 7. Business and Geographic Segments
4.1. Interpretation and Context 7.1. IAS 14 Requirements
4.2. Activity Ratios
7.2. Segment Ratios
4.3. Liquidity Ratios
4.4. Solvency Ratios 8. Model Building and Forecasting
4.5. Profi tability Ratios 9. Summary
4.6. Integrated Financial Ratio Analysis
1. Introduction
2. Financial Analysis Process
Balagtas, Mariella A.
1. Introduction
• Financial Analysis is a useful tool in assessing a company’s
performance and trends.

• The primary source of data is company’s annual reports, financial

statements, and MD&A

• An analysis must be capable of using financial statements in

conjunction with other information to make projections and reach
valid conclusions.
2. Financial Analysis Process
• In financial analysis, as in any business task, a clear understanding of
the end goal and the steps required to get there is essential. In
addition, the analyst needs to know the typical questions to address
when interpreting financial data and how to communicate the
analysis and conclusions.
2.1. The Objectives of the Financial Analysis
Process
Prior to embarking on any financial analysis, the analyst should clarify purpose and
context, and clearly understand the following:

• What is the purpose of the analysis? What questions will this analysis answer?
• What level of detail will be needed to accomplish this purpose?
• What data are available for the analysis?
• What are the factors or relationships that will influence the analysis?
• What are the analytical limitations, and will these limitations potentially impair
the analysis?
Financial Statement Analysis Framework
1. Articulate the purpose and context of the 2. Collect input data
analysis

• Objective • Organized financial statements;

• Questions to be answered financial tables, completed
• Content to be provided questionaires
• Time and budget

3. Process data 4. Analyze / interpret the

processed data.

• Adjusted financial staements; • Analytical results

common-size statements,
ratios, graphs, forecast

5. Develop and communicate 6. Follow up

conclusions and recommendations

• Report answering questions from • Updated recommendations

phase 1, conclusions ans
recommendations
 2.2. Distinguishing between Computations
and Analysis
Effective analysis encompasses computations and interpretations
3. Process data 4. Analyze / interpret the
processed data.

• Adjusted financial statements; • Analytical results

common-size statements, ratios,
graphs, forecast

Questions related to analysis of past performance:

What aspects of performance are critical to success?
How did company perform on these aspects?
Forward looking analysis:
What is the likely impact od trend/events in the company, industry and economy?
What are the risk?
3. Analysis Tools and Techniques
3.1. Ratios
3.2. Common-Size Analysis
3.3. The Use of Graphs as an Analytical Tool
3.4. Regression Analysis
3. Analysis Tools and Techniques
• Ratios
• Common Size Analysis
• Graph
• Regression analysis