financial analysis

A analysis consists in distinguish and separate the parts of a whole to get to know its elements and principles. It is the examination that is carried out of a reality susceptible to intellectual study.

Through analysis, it is possible to study the limits, characteristics and possible solutions of a problem.

Financial, on the other hand, comes from finance, which is a concept linked to public finances, goods and flows. The notion of finance is used to name the study of the circulation of money between individuals, Business or state.

The financial analysis, therefore, it is a method that allows to analyze the financial consequences of business decisions. For this, it is necessary to apply techniques that allow collecting relevant information, carrying out different measurements and drawing conclusions.

In order to fully understand the meaning of the term financial analysis, we have to resort to establishing its etymological origin. In this sense, we discover that its first word, analysis, emanates from the Greek and is made up of three different parts: the prefix “ana”, which means “up”; the verb "lyein", which is synonymous with "letting go"; and the suffix "-sis", which is equivalent to action.

On the other hand, financial is a word that comes from Latin as shown by the fact that it is formed by the verb “finis”, which gave rise to the French term “financer” which means to pay off a debt, and the suffix “–ero ”, Which indicates the ownership of something.

Thanks to financial analysis, it is possible to estimate the performance of a investment, study its risk and know if the flow of funds of a company is enough to face the payments, among other issues.

Financial analysis helps to understand the operation of the business and to maximize profitability from acting on existing resources. The managers They can access information on the expected effect of strategic decisions.

In addition to everything discussed so far, it is important to know that all financial analysis has an identical structure. It is a union of several sections that contain the data necessary to reach an accurate conclusion. Specifically, it is made up of:
• Accounts. In this case, all the information relating to both the financial statements of the company in question, such as its liquidity, risk or profitability is included.
• Heritage. Specifically, in this section, what is carried out is to carry out an analysis of the assets that the company has: composition of it, the different asset items and the weight they exert in the total, the evolution it has had in recent years ...
• Passives. It is about checking the capacity that the company has to repay the debts it contracts.
• Economic analysis, where it is determined whether the entity is really achieving sufficient profitability or not.

The investors They also appeal to financial analysis to analyze the degree of risk of their decisions and to set the objectives to be met. The lenders Y creditorsFinally, they use financial analysis to determine what risk exists for the copper of a credit or loan.