financial analysis

Financial Analysis

What is 'Financial Analysis'

Financial analysis is the process of evaluating businesses, projects, budgets and other finance-related entities

 to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is

 stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial

 analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key

area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance.

BREAKING DOWN 'Financial Analysis'

One of the most common ways of analyzing financial data is to calculate ratios from the data to compare against those

 of other companies or against the company's own historical performance. For example, return on assets is a common ratio

 used to determine how efficient a company is at using its assets and as a measure of profitability. This ratio could be calculated

 for several similar companies and compared as part of a larger analysis.