Financial analysis is evaluating, interpretation and selecting financial data and other information to help with investing and decision making. Financial data is provided by the company in annual reports and required disclosures. Financial data can also be collected from financial press, the electronic media, and economic data. However most information needed for financial analysis is the income statement, balance sheets, and statement of cash flows. The use of ratios helps to analysis the financial data to help forecast where the company is headed. There are several different ratios that should be used. Ratios can be classified as a coverage ratio which measures ability to meet obligations, a return …show more content…
Trends can impact forecasting in business. Financial trend analysis can help a company know if they are growing or shrinking by reviewing financial statements for at least three years. Common-size income statements are used to divide each line by sales giving a percentage of sales spent on these items. Common-size balance sheet is done by dividing the assets and liabilities by the total. Historical analysis looks at the balance sheets of current and past years to evaluate any fluctuations.
There are also non-financial factors which could affect forecasting. The increase or decrease in competition can affect sales for the company. This is why it is best to keep an eye on the competition to see what they are doing. Governmental policies on companies can affect how the company operates. The customers opinions of business ethics, the condition of the economy, and what environmental conditions of the company. There are also internal factors such as hiring, compensation policies, organizational structure, and management’s abilities for leadership. With all of this