Various market research companies in India engage the services of a market research consultant for financial analysis. Such consultants have experience in financial planning, analysis, and research in support of the development, acquisition, and operating activities of the company.
They assist the companies in making critical business decisions based on examining financial data in various ways like (i) forecasting spend analysis, (ii) partnership, profits, plans and processes, (iii) ad-hoc reporting and projects, etc.
Based on data provided by the analyst, the company also writes financial reports and tracks financial movement both in the organization and in the marketplace. Companies use such financial analysis to evaluate economic trends, set financial policy, plan the future financial trajectory of the business or find the potential companies for investment. This is done through the combination of financial data and numbers. Financial analysis is a critical aspect of all commercial activity as it provides actionable insights into a company’s health and future potential. Not only does this information provide investors and lenders with critical data that may affect the price of stocks or interest rates, but these reports also allow company managers to gauge their performance about expectations or industry growth.
Types of financial analysis:
Financial analysis is conducted in both corporate finance and investment finance sector. There are two types of financial analysis: technical analysis and fundamental analysis. Technical analysis looks at quantitative charts, such as moving averages (MA), while fundamental analysis uses ratios, such as a company’s earnings per share (EPS).
Further financial analysis can be categorised based on techniques used by financial analysts to analyse the performance of the company:
- Horizontal Analysis: Horizontal analysis is used in financial statement analysis to compare historical data, such as ratios, etc., over several accounting periods. This method uses past performance as a baseline metric for the success of the company can either use absolute comparisons or percentage comparisons, where the numbers in each succeeding period are expressed as a percentage of the amount in the baseline year, with the baseline amount being listed as 100%.
- Vertical Analysis: Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows. This method is generally helpful when comparing a large number of similar companies. The limitation of this method is that it often does not weight factors that impact future viability appropriately, like long-term partnerships, and one-time losses or investments
- Ratio Analysis: Ratio analysis is a quantitative method which compares the line items in the financial statements of business of gaining insight into a company’s liquidity, operational efficiency, and profitability by comparing the information contained in its financial statements. The weakness in this type of analysis is that if the two comparing characteristics are poorly chosen, an unreliable estimation of financial viability may be produced.
- Stock Price Movement: This technique is based on analysing the performance of the company’s stock rather the financial health. Stock price movement analysis is used to vet stocks, sectors, and the market and is an important method of creating the best investment strategy.
Author: Bhavna Kala
Author’s Bio:
Bhavna Kala is Senior Management Professional who has completed Executive Development Program in Applied Financial Risk Management from IIM Kashipur.
Her areas of expertise include:
Financial Research, Foreign Exchange, Trade Finance, Content Strategy, Market Research, Financial Derivatives, Market Risk Analysis, Risk Measurement (VaR), Credit Risk Management, Operational Risk Management, Asset Liability Management, and, Implementation of Tools including R and Microsoft Excel.
Her detailed profile can be seen here.
