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Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is stable, solventliquid, or profitable enough to warrant a monetary investment.

KEY TAKEAWAYS

  • If conducted internally, financial analysis can help fund managers make future business decisions or review historical trends for past successes.
  • If conducted externally, financial analysis can help investors choose the best possible investment opportunities.
  • Fundamental analysis and technical analysis are the two main types of financial analysis.
  • Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a security.
  • Technical analysis assumes a security’s value is already determined by its price, and it focuses instead on trends in value over time.