What are some useful types of financial analysis software? Originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Financial analysis basically indicates the usage of financial data to assess the performance of the company and recommend as to how things can be improved in the future. The primary role of a financial analyst is to work in an excel sheet used for analyzing historical data and accordingly make projections.
Four important types of financial analysis in an organization:
1) Based on the material used
(a) External analysis – This analysis is performed by people who are not directly associated with the firm and don’t have right to access the in-house accounting records of the company.
(b) Internal analysis – This analysis is conducted by people who have permission to handle the in-house accounting records of a firm.
2) Based on modus operandi
(a) Horizontal analysis – This refers to the evaluation of finance related data of a firm for many years. The figures in this type of analysis are reflected horizontally across many columns.
(b) Vertical analysis – This indicates the study of the connection of the different items reflecting in the financial statements in an accounting period.
3) Based on entities involved
(a) Inter-firm analysis – This deals with the assessment of financial data of particular firm with its competitors in the same industry for a similar time frame.
(b) Intra-firm analysis -This analysis includes the assessment of the performance of a firm in for a definite period of time.
4) Based on the objective of analysis or time horizon
(a) Short-term analysis – This calculates the firm’s liquidity position, i.e. the ability of the company to meet its present needs.
(b) Long-term analysis – This involves the study of a firm’s capacity to meet the repayment schedules and interest costs in the long-term. Factors like profitability, solvency and stability are measured with the help of this analysis.