{"id":8121,"date":"2023-06-19T22:42:18","date_gmt":"2023-06-19T17:12:18","guid":{"rendered":"https:\/\/razorpay.com\/learn\/?p=8121"},"modified":"2023-06-19T22:42:18","modified_gmt":"2023-06-19T17:12:18","slug":"financial-analysis","status":"publish","type":"post","link":"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/","title":{"rendered":"All About Financial Analysis"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Financial analysis helps businesses assess their projects, budgets, and financial statements and make better future predictions. In other words, businesses use this analysis to determine whether the company is performing adequately and how it can improve in future.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Accounting professionals perform this analysis using <a href=\"https:\/\/razorpay.com\/blog\/business-banking\/accounting-ratios\/\">ratios<\/a> derived from financial statements and other reports.\u00a0<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d15cb5837bc\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d15cb5837bc\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#What-is-Financial-Analysis\" >What is Financial Analysis?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Importance-of-Financial-Analysis\" >Importance of Financial Analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#How-Do-Companies-Carry-Out-Financial-Analysis\" >How Do Companies Carry Out Financial Analysis?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#What-are-the-Types-of-Financial-Analysis\" >What are the Types of Financial Analysis?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Fundamental-Analysis\" >Fundamental Analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Technical-Analysis\" >Technical Analysis<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Financial-Analysis-Techniques\" >Financial Analysis Techniques<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Horizontal-Analysis-vs-Vertical-Analysis\" >Horizontal Analysis vs Vertical Analysis<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Horizontal-Analysis\" >Horizontal Analysis\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Vertical-Analysis\" >Vertical Analysis\u00a0<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#Examples-of-Financial-Analysis\" >Examples of Financial Analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/financial-analysis\/#FAQs\" >FAQs<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What-is-Financial-Analysis\"><\/span><b>What is Financial Analysis?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Financial analysis is the process of evaluating the financial statements of businesses and making growth recommendations. It helps assess their profitability, liquidity and overall financial position. Businesses use the findings from this analysis to make appropriate decisions about investments, project planning, and financing activities.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Importance-of-Financial-Analysis\"><\/span><b>Importance of Financial Analysis<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Accounting professionals prepare reports using ratios and other techniques. The information is taken from statements and other financial reports of a company.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Continue its business operations or not<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Purchase new and upgraded machinery depending on the manufacturing demand<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Issue new shares to increase its <a href=\"https:\/\/razorpay.com\/learn\/business-banking\/types-of-working-capital\/\">working capital\u00a0<\/a><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Make decisions regarding investing or lending capital<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"How-Do-Companies-Carry-Out-Financial-Analysis\"><\/span><b>How Do Companies Carry Out Financial Analysis?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li aria-level=\"1\"><b>Corporate Financial Analysis<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Corporate financial analysis is a quantitative method that helps in evaluating a company&#8217;s financial position and its market value. It is based on the financial reports audited by accountants and published by companies to be transparent to their shareholders.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An important area of corporate analysis is to generalise a company&#8217;s past performance, such as earnings or margins. It will help to estimate the company&#8217;s future performance. This type of historical trend analysis is beneficial for identifying seasonal trends.<\/span><\/p>\n<ul>\n<li aria-level=\"1\"><b>Investment Financial Analysis<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This is another method of financial analysis in which analysts evaluate the profitability, risk, and return of an investment opportunity. Investment analysis includes selecting the type of investment based on an investor&#8217;s needs. Analysts study past returns and evaluate individual securities to predict future performance, risks, yield potential, and price movements.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What-are-the-Types-of-Financial-Analysis\"><\/span><b>What are the Types of Financial Analysis?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Fundamental-Analysis\"><\/span><b>Fundamental Analysis<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Fundamental Analysis is the analysis of a business&#8217;s financial statements to determine the intrinsic value of a business&#8217;s stock. It helps in identifying the key attributes of a business and analysing its actual worth. There are mainly three sets of reports used in financial analysis- historical data, publicly known information, and information that is not public.<\/span><\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Technical-Analysis\"><\/span><b>Technical Analysis<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Technical analysis is a<\/span> <span style=\"font-weight: 400;\">financial analysis methodology that uses statistical trends from trading activity to evaluate investment opportunities. Technical analysis examines past market data, price and volume of stocks to understand the viability of the business.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are many methods of technical analysis but technical analysts mostly use bar charts, candlestick charts, line charts, and point and figure charts. These types of charts and graphs help analysts to denote patterns and trade signals.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Financial-Analysis-Techniques\"><\/span><b>Financial Analysis Techniques<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Analysts primarily use vertical and horizontal methods while conducting financial analysis. These analyses are performed by comparing the data against a baseline benchmark.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Other essential financial analysis techniques include regression analysis and year-over-year growth analysis. Apart from these analyses, there is top-down analysis like the market share percentage and bottom-up analysis like the revenue driver analysis.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Horizontal-Analysis-vs-Vertical-Analysis\"><\/span><b>Horizontal Analysis vs Vertical Analysis<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Horizontal-Analysis\"><\/span><b>Horizontal Analysis<\/b><span style=\"font-weight: 400;\">\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">It is a type of financial analysis in which analysts look at financial trends over a period. In this analysis, financial data for one year is selected as the baseline against which all the accounts of companies are compared for each year. Subsequently, it shows a percentage that denotes which accounts are growing and which are shrinking.\u00a0<\/span><\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><span class=\"ez-toc-section\" id=\"Vertical-Analysis\"><\/span><b>Vertical Analysis\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In vertical analysis, a specific line item is chosen as a benchmark. Then every other component of a financial statement is compared to that benchmark. Most analysts use net sales as the benchmark and compare it to the cost of goods sold, gross profit, operating profit, and net income.\u00a0\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Analysts use percentages for vertical analysis, as it makes the data easier to visualise. Companies then track these percentage changes over time and take business decisions accordingly.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Examples-of-Financial-Analysis\"><\/span><b>Examples of Financial Analysis<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li aria-level=\"1\"><b>Current Ratio Analysis Example<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">There are two companies from which an investor wants to invest. Company A has current assets worth \u20b92 Cr. and current liabilities worth \u20b91 Cr. Whereas Company B which is a much bigger company has current assets of \u20b95 Cr. and current liabilities of \u20b93.5 Cr.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Analysts use the current ratio formula to determine which is a better company to invest in.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The formula of the current ratio is:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Current ratio = current assets \/ current liabilities<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The current ratio of Company A = 2 Cr. \/ 1 Cr. = 2<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The current ratio of Company B = 5 Cr. \/ 3.5 Cr. = 1.43<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to the analysis, Company A has a current ratio of 2 and Company B has a current ratio of 1.43. This means Company A is in a much better financial position than Company B and it can repay any current debts or obligations much faster.<\/span><\/p>\n<ul>\n<li aria-level=\"1\"><b>Profitability Ratio Analysis Example:<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Company A has an operating profit of \u20b950,000 and net sales of \u20b92,00,000. In contrast, Company B has an operating profit of \u20b91,00,000 and net sales of \u20b94,00,000. To determine which company to invest in, analysts calculate the profitability ratio.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Profitability ratio = operating profit \/ net sales x 100<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Profitability ratio of Company A = 50,000 \/ 2,00,000 x 100 = 25%<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Profitability ratio of Company B = 1,00,000 \/ 4,00,000 x 100 = 25%<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Based on the profitability ratio analysis, both of these companies have the same profitability ratio of 25%.\u00a0<\/span><\/p>\n<p><b>Why are Businesses Choosing RazorpayX to Manage Their Business Finances?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">RazorpayX is a business banking suite that offers several integrated automated systems to manage finance. In other words, it resolves all the banking needs of a company.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Businesses can open <\/span><a href=\"https:\/\/razorpay.com\/x\/current-accounts\/\"><span style=\"font-weight: 400;\">current account<\/span><\/a><span style=\"font-weight: 400;\">s using RazorpayX to enjoy unlimited transactions including payments, deposits and withdrawals. The current account helps companies to ease out their banking and daily financial activities seamlessly. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Another facility of the business banking platform is the automated <\/span><a href=\"https:\/\/razorpay.com\/x\/vendor-payments\/\"><span style=\"font-weight: 400;\">vendor payment <\/span><\/a><span style=\"font-weight: 400;\">option. It simplifies the whole process of invoice keeping, scheduled payments, and invoice generation.<\/span><\/p>\n<p style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/razorpay.com\/x\/?r=blog_cta_business_banking_financial_analysis&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Check out RazorpayX<\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\t\t\t<div id=\"rank-math-rich-snippet-wrapper\" class=\"\">\n\n\t\t\t\t\n\t\t\t<\/div>\n\t\t\n","protected":false},"excerpt":{"rendered":"<p>Financial analysis helps businesses assess their projects, budgets, and financial statements and make better future predictions. In other words, businesses use this analysis to determine whether the company is performing adequately and how it can improve in future.\u00a0 Accounting professionals perform this analysis using ratios derived from financial statements and other reports.\u00a0 What is Financial<\/p>\n","protected":false},"author":151156542,"featured_media":8122,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3437],"tags":[3672],"class_list":{"0":"post-8121","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-banking","8":"tag-financial-analysis"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/8121","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156542"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=8121"}],"version-history":[{"count":1,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/8121\/revisions"}],"predecessor-version":[{"id":8123,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/8121\/revisions\/8123"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/8122"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=8121"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=8121"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=8121"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}