Business Analysis Valuation Financial Statements
At times analyzing companies is no easy job. Despite the fact that the top analysts at Wall Street usually rake in millions yearly there is always a lot of pressure on their shoulders to perform. One mistake even in a single value can cause a hedge fund, bank or other financial institutions to lose lots of cash.
The reason why analyzing a company isn’t as easy as it seems is the fact that managers and top executives usually manipulate their company’s financial data. As a result of this they make their company look like it’s performing really well which isn’t the case.
Another reason why it can be hard to analyze certain company’s data is due to the fact that they can disclose certain information from the public which is quite legal in some respect. But on the other hand a move like that can keep investors and analyst guessing for a while.
A great strategy or a set of tools business analysts have come to rely on over the years to measure a company’s performance is using financial statements. When you use financial statements it helps you to get an insider view of what the company is really like.
Another reason why financial statements are useful is that it allows you to analyze a company in a 4 part step by step framework. These are business strategy analysis, accounting analysis, financial analysis and prospective analysis. Using the financial statement through these tools is what makes it so useful. Below you can see each tool in more detail.
Business strategy analysis
When executing business strategy analysis, it helps you to look at the firms main profit channels. It also helps you to see the risks that it may face both internally through poor management and from outside competitors.
Additionally it’s going to also allow you to look at its competitive advantage within its market and its possible business strategy for the future. So basically you are going to collect all these data to make a proper prediction on a firm’s future.
Accounting analysis will help you to dissect a firm’s accounting strategy. There are a lot of times when companies tend to come up with a lot of forecast numbers on how their company will perform or how well they’ve done a certain quarter.
These numbers will usually leave analyst scratching their heads a bit. Because in their minds they are wondering how that company did come up with such complex formula to try and justify their numbers. Another reason why accounting analysis is important is because it also helps you to spot manipulation in the accounting data.
You can then go about using your firms accounting strategy. That’s going to help you figure out a better unbiased data that both your firm and the public can accept.
You are going to use this strategy to analyze a firm’s financial data. That is going to help you get insights into its performance now and for the future. Furthermore it can assist you in letting you see how well a firm is doing and help strip out the market noise.
You can use prospective analysis to try and make a sound forecasts on a company’s future. You are going to look at the current valuation and market share of a company. Then make an estimate of how much it will gain or lose in the future.
In summary using financial statements to analyze a company will give you great insights on what a company is really up to. Taking advantage of financial statements in business analysis valuation will help you and your teams make important decision looking from the outside on whether a company looks great to invest in.