Financial analysis is a means of converting statements on financial statements into information that is useful in predicting a company’s financial performance, the outcome of its business, and the diagnosis of its financial situation .

Objectives of the financial analysis :

1. To judge the development of the company’s sales and profitability.
   
   
2. Measuring management’s efficiency in managing invested assets , whether in
   circulation or fixed assets .
   
   
3. Measuring the financing structure and liquidity position of the company .
   Statement of the company’s financial situation .

Users of financial analysis :

1. The investors are the owners of the company as well as the investors who wish to
   buy some of the company’s shares.
   
   
2. The company’s activities are financed by banks , lenders and bondholders
   issued by the company to finance its activities .
   
   
3. Financial exchanges and financial markets in which the company offers its
   shares .

Brokerage companies that may be asked to express an opinion or provide technical advice
to some investors .
Research centres , studies , institutes , universities , the press and public and
specialized media .

Importance of financial analysis :

1. Financial analysis is a means of converting the statements on the financial
   statements into information that is useful in predicting the company’s
   financial performance , the outcome of its business in general and the risk of
   financial distress in particular .
2. Saving the time , effort and cost of financial and administrative
   decision-making .
   
3. Increasing the internal confidence of the employees of the company , or
   external supervisory and monitoring agencies or by the public of the company
   and those interested in it .

Types of financial analysis :

1. According to the purpose of the financial analysis :

a. External analysis : An analysis that serves creditors by trying to measure credit .
b. Internal Analysis : An analysis that serves management , moving towards
measuring profitability .

         2. According to the time dimension of the financial analysis :

a. Consistent analysis : Includes the study and interpretation of the
relationships between the data contained in the same company’s financial
statements over a single period of time .
b. Dynamic analysis : involves examining and interpreting the relationships
between data contained in private financial statements after periods of time
for the same company .

          3. According to the methods used in the financial analysis :

a. Horizontal analysis : Includes comparisons of data or ratios calculated with
data or ratios of the same company’s solid financial period or comparing the
same ratios with those of other enterprises for the same period .
b. Vertical analysis: includes data analysis and calculation of general
financial ratios indicating the proportion of each component in the
consolidated list .

Financial analysis procedures :
Financial analysis procedures are divided into two types :

1. Preliminary proceedings  Prior to the financial analysis , the financial analyst must ascertain the following :

a.Ensure the integrity of the financial statements .
b. Ensure that financial statements are reviewed .
c. Ensure the period covered by the financial statements .

         2.Basic procedures these are :
a. Defining the objective of the financial analysis process
b.The objective of the financial analysis process must be determined precisely
as the financial analysis tools and tools vary depending on the objective of
the analysis process .

1.There are
several objectives for financial analysis , the most important of which are :
– Assessment of the company’s capacity to pay in the short term (liquidity
analysis) .
– Assessment of the company’s long-term capacity to pay (financial ease
analysis) .
– Assessment of the company’s profitability (analysis of financial
effectiveness) .
– Analysis of the company’s financing structure (leverage) .
– Asset management assessment and the efficiency of its use to produce sales .
2.Preparation of financial statements for the analysis process  through :
– Reclassifying the elements of the financial statements to fit the purposes of
the analysis .
– Preparation of financial lists in a way that is easy to compare for a number
of years .
3. Determine the methods that will be used in the financial analysis .

Financial
Analysis Tools :
There are many financial analysis tools and methods of comparative financial
statements , indices and financial ratios .
However , financial ratios are considered to be the most important financial
analysis tool , using the proportions calculated from the financial information
contained in the financial position and income lists as predictors of the
company’s financial situation .