How often do you think companies should perform a financial analysis? Who should be involved in the financial analysis process? How much information should be shared with employees?
Week 7 Discussion: An Overview of Financial Analysis
An Overview of Financial Analysis:
The term Financial Analysis refers to the process of assessing the financial statements of any company in order to know the financial performance of that company and analyze what position the company stands in terms of its financial management (Welc, 2022, p.132). It encompasses scrutinizing financial data, identifying investment opportunities, building long-term business plans, and so on. It scrutinizes the financial health of the company to take needed actions on time.
Reviewing financial statements is undertaken annually and in some cases quarterly so that one could check on the goal to be achieved, verify transactions, be alert on the primary issues, and carry out appropriate tax planning (dutch uncles., 2021). It helps in identifying any deviation from the set goal. It is mandatory for the management to report every month for the review and analysis of the financial analysis to devise corrective measures if any are required to be taken.
Financial analysis is done by a financial analyst. Financial analysis requires learning about liquidity and profitability, financial ratios, and more. The financial analyst thoroughly examines a company’s financial statements which are the income statement, the balance sheet, and the cash flow statement. The parties interested in the analysis of financial statements are basically the stakeholder who can be management, shareholders, creditors, debtors, investors, regulatory authorities, etc.
Regarding the limit of sharing financial information with the employees, it is better to share as much as possible as it boosts transparency and creates trust among employees. However, the corporation may decide the amount of information to be shared and it depends upon factors like the size of the business, the industry occupied and the culture to be inculcated. Sharing formation with employees promotes understanding of their roles within the business (Osadchy et al. 2018, p.43)). It also empowers employees for better decision-making when they are informed about the financial position of the company. Moreover, being part of the organization it is necessary for the employees to know and understand the financial position of the company so that they could operate accordingly.
Dutch uncles. in (2021). How Often You Need To Analyse Financial Statements And What Should You Look For?, Retrieved from: https://dutchuncles.in/build/financial-statements-analysis-and-how-often-one-should-do-that/ [Retrieved on: 262/07/2022]
Osadchy, E. A., Akhmetshin, E. M., Amirova, E. F., Bochkareva, T. N., Gazizyanova, Y., & Yumashev, A. V. (2018). Financial statements of a company as an information base for decision-making in a transforming economy.
Welc, J. (2022). Financial statement analysis. In Evaluating Corporate Financial Performance (pp. 131-212). Palgrave Macmillan, Cham. https://cleartax.in/g/terms/financial-analysis