Financial analysis identifies key ratios and characteristics and compares these to industry standards and competitors to make informed
decisions about the financial health of the firm now and for the foreseeable future. Financial analysis, also called fundamental
analysis, is one of the two tenants of the crystal ball investors and analysts use to make a variety of investing decisions.
The
most important part of financial ratios is not in the calculation but in the comparison and interpretation of these ratios to known
standards. These standards are previous years ratios of the same firm, other competitors or set values.
Most knowledgeable
investors have a few of the key ratios memorized for quick "back of the envelope" analysis but leave the majority of the calculations
to financial analysis programs. This efficiency speeds up the process by allowing the investor to pump raw data into the input
of the program, turn the crank and have profitable firms separated out from the dogs.
Click
HERE for a review of a few stock
analysis programs.
Financial statements provide the source of the raw data that must be extracted and processed.
