Theretical and methodological basis of financial analysis

Question 1

What is financial analysis?

Answer 1

It is a tool by which certain phenomenon are decomposed in many components in order to find the final cause of the phenomenon.

The final purpose of Financial Analysis is to adopt solutions of ameliorating that phenomenen starting from knowing those causes.

Question 2

Who are the users of financial analysis?

Answer 2

• Internal (employees, investors, managers etc)
• External (competitors, partnering businesses, public etc)

Question 3

What are the sources of financial analysis?

Answer 3

• Financial statements
• Websites
• Buletin of insolvencies
• Stock exchange

Question 4

What are the steps to be taken in financial analysis?

Answer 4

1. Planning the financial analysis (which is the company, topic, period of analysis, term/deadline etc)
2. Gathering and selecting the necessary information for analysis
3. Checking the collected information
4. Analysis of the data
5. Drawing up the financial analysis report

Question 5

What does the planning of the financial analysis stage involve?

Answer 5

• A presentation of the entity (name, short history etc)
• Establising the objective of the analysis
• Define the key issues to be investigated
• Establish the period of analysis
• Establish the deadline term

Question 6

What does collecting and selecting information step in a financial analysis involve?

Answer 6

Gathering information about:

• stock price, market risk, dividends
• sectoral information of performances of competing companies
• national insolvency etc

Question 7

What does checking the information in financial analysis involve?

Answer 7

This stage is intended to check if our data is in line with the reality of the entity’s economy.

Two types of checks can be considered:

• Form check (checking all documents to have necessary signatures and stamps)
• Substantive check (reffers to verify the reality of operations recorded by accounting documents, ensuring the information is compatible)

Question 8

What does data analysis involve?

Answer 8

Qualitative analysis
* establishing the correlation between each factos

Quantitative analysis
* measuring influences of factors

Question 9

What does drawing up the financial analysis report involve?

Answer 9

It involves synthesising the results of the analysis according to the objectives pursued.

It establishes the strenghts and weaknesses of the analysis.

Question 10

What are components of financial analysis?

Answer 10

• Financial position’s analysis on the basis of the Balance sheet
• Performance analysis based on the Profit and Loss account
• Cash flow analysis
• Risk analysis
• Forecasting analysis

Question 11

What are the financial statements?

Answer 11

• Balance sheet
• Income statement
• Statement of changes in owner’s equity
• Statement of cash flows
• Notes to financial statements