Essay

BOSSOU Tinan

Financial statement analysis

Assignment 1:

1. Discuss the four main steps of a comprehensive business analysis with financial statements. As a financial analyst, explain why each of these steps is a critical part of your job and how they relate to each other.

* 1st part of the question

The four main steps of a comprehensive business analysis with financial statements:

-Business strategy analysis

This step simply consists in analyzing the business strategy of a firm when it comes to its profits. The goal here is to see how long a company can stay in business based on its potential profit. In fact, this analysis is done at a qualitative level. Moreover, this kind of business analysis helps predict the firm’s future performance.

-Accounting analysis

To analyze the performance of a firm, we only based on accounting information in the statement. Therefore, we need to make sure that the numbers used are unbiased and also that the statement are consistent regarding policies. That is why this step exists.

-Financial analysis

To ensure the sustainability of a business firm, this step is really important because it consists in using financial data to study the future of a firm based on its past and its present. We mostly have to use ratios but also cash flows’ interpretation in this step. Both help evaluate respectively the performance and the liquidity of the firm.

-Prospective analysis

This is the last step of this business analysis. It is the prediction of the firm’s future itself. We generally used two methods which are valuation and financial statement forecasting. This step makes a general conclusion of all the Suspicions generated through the 3 previous steps.

* 2nd part of the question

As a financial analyst, each of the previous steps is a critical part of my job since I have to study entirely the performance of a company to recommend or not a sale, a purchase, an investment somehow subjectively…

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