Through financial analysis examines the financial status or finances of a company. Among other documents are used the method of ratios.

The economic and financial analysis of the company, Or simply called financial analysis has as main objective to carry out the analysis of the economic situation of the company and measuring the return on capital invested. And it’s not enough to make the company from the profitable economic standpoint, but also need your financial structure is commensurate with its economic structure, not only in the present moment in the future.

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Documents of financial analysis for the study of corporate financial statements

The financial analysis used in order to carry out the study of economic and financial situation of the companies The following documents:

1. Balance sheet and income statement. The balance is the sum of the balance sheet of a company, which is reflected in the static position of an estate, must appear with the proper separation of the assets of the company, which is composed of the assets and rights, and obligations, that form the passive, expressly referred to herein on equity or the resources available to the company.
2. Method ratios. The profit and loss account quantifies the business income and describes its formation. In each of the items in the profit and loss account, in addition to being the figures of the financial year ending should also include the figures for previous years. The annual accounts of the year as it closes and the previous year. The fundamental concepts that make up the account are:

Debit: All expenses of the company are entered in the must.
Credit: All company revenue is recorded on the credit side.
Benefits: It is reflected in, and the credit losses.
Seat: Write a number on the account items.
Result: The cash flow management company.

The financial analysis of companies used the method of ratios

The financial analysis also employs the method of ratios. Ratio is an Anglo-Saxon word, derived from the Latin word ratio, reason and respect. The ratio allows to know the solvency ratio, which indicates whether a company is solvent or not.
Types of financial ratios used in financial analysis of companies

The most significant financial ratios used to conduct the financial analysis are:

1. Liquidity ratio, also called short-term solvency. Represents the relationship between the current assets of the company and current liabilities.
2. Acid ratio (acid test), financial situation represents a very short time.
3. Defensive position, a ratio that indicates the time (in days) that the company would have to survive solely using the assets that the company has at the moment in which this ratio is calculated without taking into account funds from current or future sales.
4. Capital adequacy ratio or distance out of business, reflect the totality of real assets owned by the company to deal with total debts you have.
5. Earnings per share (earning per share) Shows the benefit for each action.
6. Dividend policy or pay out, it measures the percentage of profit that is distributed to shareholders.
7. PER (Price Earning Ratio) represents the number of times that the benefit of an action is contained within the price.

The financial analysis of companies can economic and technical insolvency insolvency

If two enemies who by nature should be avoided at all costs a company are the economic insolvency and technical insolvency. Economic insolvency (bankruptcy) occurs when the liabilities of the company exceeds the asset. Technical insolvency (bankruptcy) occurs when, despite the assets exceeds the liabilities, the company lacks sufficient resources to meet the payment of its obligations, as there is a correspondence between the cash flows input and money flows out. In both cases the first symptom of insolvency begins to be layoffs employees of the company.

Importance of financial analysis in business

The financial analysis has as one of its main functions to anticipate and prevent insolvency states, which otherwise, in addition to damaging the image of the company would bankruptcy, which undoubtedly marked the beginning of the end of the company or talking in terms of labor contracts would sign the release of it and feed even with small doses on a company’s current economic crisis.