Liquidity Analysis
This focuses on a company's ability to meet its short-term obligations without raising external capital. It's crucial for understanding how well a company can handle immediate financial demands.
Current Ratio: Measures the ability to cover short-term liabilities with short-term assets.
Quick Ratio (Acid-Test Ratio): A more stringent measure than the current ratio, excluding inventory from assets.
Cash Ratio: The most conservative liquidity ratio, considering only cash and cash equivalents.
Solvency Analysis
This assesses a company's capacity to meet long-term obligations, crucial for understanding the long-term financial stability and structure of a company.
Debt-to-Equity Ratio: Indicates the proportion of equity and debt a company uses to finance its assets.
Interest Coverage Ratio: Measures a company's ability to pay interest on its outstanding debt with its earnings.
Debt Ratio: Shows the proportion of a company's assets that are financed by debt.
Profitability Analysis
This evaluates how effectively a company generates profit from its operations, essential for assessing overall performance and efficiency.
Gross Profit Margin: Indicates the percentage of revenue that exceeds the cost of goods sold (COGS).
Net Profit Margin: Reflects the percentage of revenue that remains as profit after all expenses are deducted.
Return on Assets (ROA): Measures how effectively a company uses its assets to generate profit.
Return on Equity (ROE): Indicates how efficiently a company uses shareholders' equity to generate profit.
Efficiency Analysis
This focuses on how well a company utilizes its assets and manages its operations, providing insights into operational performance.
Asset Turnover Ratio: Reflects how efficiently a company uses its assets to generate sales.
Inventory Turnover Ratio: Measures how frequently inventory is sold and replaced over a period.
Accounts Receivable Turnover Ratio: Indicates how effectively a company collects revenue from its customers.
Market Value Analysis
This assesses a company's market performance and investor expectations, crucial for understanding market perceptions and valuation.
Price-to-Earnings (P/E) Ratio: Indicates how much investors are willing to pay per dollar of earnings.
Market-to-Book Ratio: Compares the market value of a company to its book value.
Dividend Yield: Measures the dividend income per share relative to the share price.
Cash Flow Analysis
This focuses on the cash inflows and outflows, assessing liquidity, flexibility, and overall financial health.
Operating Cash Flow: Cash generated from regular business operations.
Free Cash Flow: Cash available after deducting capital expenditures, useful for expansion, dividends, or debt repayment.
Cash Flow to Debt Ratio: Measures a company's ability to cover total debt with its operating cash flow.
Comparative Analysis
This involves comparing financial metrics against industry benchmarks or competitors to gauge relative performance.
Peer Group Analysis: Involves comparison of various financial metrics with those of similar companies in the industry.
Benchmarking: Involves comparing company metrics against best practices or standards in the industry to identify areas for improvement.
Trend Analysis
Analyzes financial data over multiple periods to identify patterns, trends, and anomalies, essential for forecasting and strategic planning.
Year-over-Year (YoY) Growth: Measures annual growth rate.
Compound Annual Growth Rate (CAGR): Provides a smoothed annual growth rate over a period.
Horizontal and Vertical Analysis
Horizontal analysis compares financial data over several periods, while vertical analysis assesses financial statements by expressing items as a percentage of a base figure.
Horizontal Analysis Formula: Used to analyze trends over time by comparing financial data across periods.
Vertical Analysis Formula: Used to analyze relationships within a single financial statement by expressing items as a percentage of a base amount.
Risk Analysis
Evaluates the financial risks that a company faces, such as market risk, credit risk, and operational risk, crucial for risk management and decision-making.
Value at Risk (VaR): Statistical technique to measure the potential loss in value of a portfolio over a defined period for a given confidence interval.
Stress Testing: Involves analyzing the impact of extreme hypothetical scenarios to assess financial stability.
Scenario Analysis: Evaluation of possible future events by considering alternative possible outcomes (scenarios), helping in understanding potential risks and responses.
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