DESIGNING A FINANCIAL ANALYSIS REPORT

It comes the time in every business financial year when organisations have to put their best foot forward (or not) and design their financial analysis report. The purpose of financial analysis report is to present the company’s financial information. Often the intent of a financial analysis report is to present the company’s financial status to its investors and stockholders and to recommend the new stock, investment or sale.

A financial analysis report will cover the essentials of a company so that investors and stockholders understand the core of the business. It also covers the organisation’s advantages, weak points and risk factors. It will analyse trends and changes in the company’s performance, they will often include competitor data and compare business performance to industry standards.

The essential parts of the financial analysis report are as follows:

Company Overview

Just like every other report, it always begins with a description and in-depth information about the company. Just like in your business plan, this description covers the company’s activities, sources of income, industry and its competitive advantages.

Balance Sheet and Income Statement

This section includes financial statements in order to uncover any trends from the previous years. Financial analysis reports can include two-year comparison reports, five-year trend analysis reports, industry and group comparison reports, definitions, of categories, and ratio formulas. It also often includes horizontal analysis to identify smaller changes within the business.

Ratios

This section of a report will look into company’s ability to meet its short-term obligations, it reviews any assets that a company can quickly convert to cash without loss of value if necessary, to meet its short-term obligation. This section also evaluates the company’s ability to make timely payments to creditors and to continue to meet obligations to lenders when faced with an unforeseen event.

Valuation

After reviewing the ratios and the company’s ability to meet its obligations, the company’s valuation takes place on the report. This section calculates the stock value or a company’s worth. A stock can be valued based on discounted cash flows, by comparing the results to its competitors and by comparing the book value to the current price of the stock. This will show the investors if the price of the stock currently is overvalued or undervalued.

Full Risk Analysis

While financial ratios, balance sheet and income statement clearly show a level of risk valuation of the business on the review, but this section specifically concentrates on a thorough revision of business risk. This can be sensitivity or scenario analysis and often shows such risks as regulatory approvals, supply dependency and so on.

Results

This section includes a detailed summary of the company’s financial statements and interpretations of the statements. This is often the section that visualises a lot of the data presented and interprets it.

The key part of a financial analysis report is finding the few key drivers or bottlenecks that will allow the stock to gain value if they are handled correctly.