Financial Analysis

Financial analysis is the process or procedure of evaluating projects, businesses, budgets, and other finance-related entities or objects to decide their suitability and performance. Typically, financial analysis is used to analyze or examine whether an entity or object is stable or profitable enough to permit a monetary investment. When looking at a specific company or corporation, a financial analyst conducts investigation or analysis by focusing on the balance sheet, cash flow statement, and income statement. This is done through the combination of data and financial numbers.

There are two types of financial analysis:

  • Technical analysis.
  • Fundamental analysis.

Advantages of Financial Analysis:

The strength of financial analysis lies is its easiness and comparability which helps us in the following ways:

  • Financial analysis shortens a company’s financial statements and allows us to express financial position information and critical profitability in just a few numbers.
  • It helps in trend examination or analysis which involves comparing or relating a single company over a period.
  • It helps in comparing or relating companies of various size with each other.
  • It highlights significant information in modest form quickly

Some of the limitations of Financial Analysis are:

  • Financial ratio analysis is useful only when an evaluation is made between two companies from similar industries. Many companies have numerous lines of business and their financial statements provide a compound view of the company. Equating a company with industry average is not very useful because the average also includes companies that have been performing poorly.
  • Diverse companies follow diverse financial reporting frameworks, which allow different accounting policies for identical transactions. In such a situation, it is vital to adjust one company’s financial statements. For example, if one company makes its financial statements under US GAAP and another follows IFRS, then it is necessary to convert the IFRS financial statements to US GAAP or vice versa.
  • Management’s capability to change expectations potentially allows them to manage their ratios by changing accounting expectations from time to time which could impair the comparability of financial ratios.
  • Ratio analysis explains relationships between previous information while users are more concerned about present and upcoming information.
  • The calculation procedure of diverse ratios is not uniform. For example, some analysts calculate return on assets by operational income and use closing total assets balance in the denominator while others base on dividing net income by average assets.

Financial Toolbox provides various functions for statistical analysis and mathematical modeling of financial data. The toolbox enables you to analyze interest rate levels, estimate risk, measure investment performance and price equity and interest rate derivatives.

Financial Toolbox performs or execute portfolio optimizations, asset allocations, risk analyses, fixed income pricing, and much more.

  • Fixed Income: It determines the cash flows, price, and yield for various types of fixed-income securities including mortgage-backed
  • Financial Derivatives: it calculate prices and sensitivities of derivatives and examine interest rate derivative instruments and portfolios.

Some of the examples of financial toolbox are given below:

  • Technical Analysis
  • Volatility modeling
  • Option modeling
  • Fixed Income Analysis

Monte Carlo Simulations

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