Can financial analysis by itself evaluate financial health of the entity?

Last updated: 24.03.2016

Financial analysis significantly helps evaluate the company's financial situation. However, it is necessary evaluate other information as well. This information can include:

  • Internal information:
    • the notes to the financial statements
    • tax situation of the company (tax returns)
    • events happened after the end of the reporting period
    • the auditor's opinion
    • maturity structure of assets and liabilities etc.

 

  • External information:
    • macroeconomic conditions - recession/boom, inflation, exchange rate, GDP and GDP growth, taxation and interest rates, unemployment rates, availability of credit
    • political conditions - e.g. consumer protection, subsidies, tax rates, social and and health insurance paid by employers
    • legislative conditions
    • social conditions - e.g. the demographic structure, crime-rate, fashion
    • current and expected development in the markets in which the company operates - e.g. new competitors and substitute products


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