Financial analysis

Topics: Financial ratios, Financial ratio, Investment Pages: 3 (1281 words) Published: October 31, 2014
Financial analysis Lynn University Analysis of financial position is the assessment of stability, viability, and profitability of a project or business. It is performed using ratios and used in making decisions by top management. The information from the analysis helps the management make decisions regarding investment, lending, and issuance of stocks, purchases, continuation, and discontinuation. The goals of performing financial analysis are to asses profitability, solvency, liquidity, and stability. Profitability is the ability to generate income and sustain growth in the short term and long term. A solvent organization can pay its obligations and others in the long term. A liquid company can maintain positive cash flow and also meet its immediate obligations. A stable company can maintain itself in business for a long time in future (Coyle, 2010). Financial ratios are used to perform financial analysis. A financial ratio is a qualified scale of two selected financial numerical taken from an organizations financial statement. The market share of an organization in the market can be used to calculate the ratios. If a company is traded in the stock exchange market, it could be easier to do so. They are expressed as decimals or percentages (Coyle, 2010). Profitability ratio It measures ability to generate adequate income to sustain growth. The use of assets and control of expenses in company, income generation is used. An acceptable rate of return is expected. Profitability ratios include gross margin, operating margin, and return on equity, profit margin, return on assets and return on capital (King 2007). Gross margin QUOTE OR QUOTE It enables the determination of profit before deductions such as taxation and paying of employees. Operating margin QUOTE It is used when a firm does not have operating income. Shows earnings before taxation and paying interest. Profit margin QUOTE It establishes the excess of accumulated profits over the net sales. A...
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