How to conduct a financial analysis of your company in 10 steps

How effectively does your company use its resources to extract value from data? What most people don’t realize is that to drive success, you need an effective financial analysis.

You can’t manage what you don’t measure and analyze. Want to get a better understanding of where you stand on the analytics scale? Let’s deep dive into what you need to know about financial analysis that impacts your business decisions.

Elevate your business performance: Financial analysis in 10 steps

Financial analysis is the process of using a company’s financial data to assess its business performance and gather insights for decision-making. With access to financial analysis, business owners can determine their business performance, sustainability, and growth. Moreover, financial analysis helps companies to evaluate economic trends, develop long-term business plans, set financial policies, and determine where to make good investments.

It’s important to perform a company financial analysis to see how the company is performing compared to earlier periods and how business performance stands up against other competitors in its industry.

Here are the basic 10 steps for you to start dabbling in the art of financial analysis:

1. Collect data to understand your business’s financial statements

Financial statements tell your business's story. To improve business impact, collect your company’s financial statements. Track your business performance and plan effectively for future growth and opportunities. To know where your business stands check your financial information:

• Income statement

• Balance sheets

• Cash flow statement

• Shareholders equity statements

2. Analyze financial statements to understand the strengths and problems

After collecting these financial statements, it’s time to analyze and scan them to look for large movements in specific items from one year to the next.

3. Inspect footnotes to have a better view of the financial statement

During that period, make sure to review the financial statement’s notes. These notes are the footnotes to the statement that elaborate on necessary details about the statement.

4. Understand and analyze the balance sheets

Look at the balance sheets to understand your company’s liquidity, strength, and efficiency. Analyze it to see if there are large changes in your company’s assets, liabilities, or equity.

5. Examine the income statement: Profit and loss (P&L)

To identify trends over time, you need to analyze the income statement which reports your company’s financial performance over a given period, including revenues, expenses, gains, losses, and net income.

6. Interpret the statement of shareholder’s equity: A picture of how your business is performing

Then, evaluate the shareholder’s equity statement that summarizes the ownership structure of your company. It demonstrates how shares, total equity, and ownership types have changed over time.

7. Analyze the cash flow statement: Check your business’s current liquidity and solvency

Examine the cash flow statement to track your business's financial health. You have three main breakdowns that show where cash is coming from and going to operations, investing, and financing.

8. Calculate financial ratios to evaluate business performance

Calculate financial ratios to simplify the comprehension of financial statements. Ratios allow you to determine your company's ability to pay dividends, provide company comparisons in the industry, and more.

9. Gather your company’s key competitor’s data: Build profiles based on key areas and insights

Understand your competitors effectively to know who they are and how their business performance is. You can use this knowledge to create strategies that take advantage of your competitors' weaknesses and improve your business performance.

10. Check public market valuation: The value of your company's stock in the marketplace

Review the market data of the business’s stock price, as well as the price-to-earnings ratio. Public market data can tell us about the valuation of comparable companies that are similar in scope, size, and service.

Once the evaluate o all of the data you generated, build and develop new financial strategies to make your business future-ready. With the advantage that a good financial analysis gives you, follow new and comprehensive strategies that distinguish your company from your competitors.

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