This revenue statement is used in the determination of the business level of profit and loss, especially in a fiscal year.
Vertical analysis helps in the comparison of one company’s profit in contradiction to other companies in a similar business line. This analysis is used to review the marginal strength or weakness as well as the performance of the business.
2. Horizontal or Comparative Analysis
This is a second financial tool that includes taking into consideration the business activities of between five to ten years (or more) and statistical facts and contrasting the figures with one another to verify the internal and external growth rate.
This is particularly the duty of the statistician to forecast and determine if the business is growing incrementally or is moving at a deteriorating rate and proffer possible solutions to the ravaging puzzle.
This monetary analysis is mostly used by companies using the program Microsoft excel to study the trends in the facts and perform further analysis.
3. Leverage Analysis
Leverage ratios are one of the most common analytical tools analysts use to statistical analysis the functioning of the business.
Common examples of ratios mostly used by companies include equity debt and betide ratio. Equity debt is the ratio that accounts for the value of the entire debt including the total shareholder’s equity and liabilities.
On the other hand, the EBITDA ratio in the view of an accountant is the net debt to earnings before interest, taxes, depreciation, and amortization popularly abbreviated as (EBITDA).
4. Growth Rates
This tool uses regression analysis of past growth rates and makes forecasts for the future. This growth rate uses measures such as year-over-year measures for contracting different time-series data, and regression which is the use of arithmetical methods used to evaluate the correlation between two variables known as the dependent and the independent variables.
5. Profitability Analysis
Profitability is a tool that stays strictly with the income statement of the company. Income statements showcase the profit and loss of the business over a specific period of time usually one year. Most models of profitability are Gross margin Gross, EBITDA margin ratio, and net profit margin among others.
6. Liquidity Analysis
This is a tool of financial analysis that is primarily concerned with the balance sheet by designating the well-being of the company. It uses models such as the current ratio, acid test, cash ratio, net working capital, and the Current Ratio Formula.
Efficiency ratios are mostly trusted because it is programmed and run with robustness. This financial analysis shows the company’s decision-making toward income creation.
Also, the common efficiency ratios models are asset turnover ratio or total asset turnover ratio, fixed asset turnover ratio, cash conversion ratio, inventory turnover ratio, etc.
8. Cash Flow
Cash flow is a tool of financial analysis that summarizes the economic activities of the business in monetary terms. Common models used in cash flow analysis are Operating Cash Flow (OCF), Free Cash Flow (FCF), Free Cash Flow to the Firm (FCFF), and Free Cash Flow to Equity (FCFE).
9. Rates of Return
Finance professionals such as investors and lenders use this financial analysis to determine the rate of return that will be realized when money is staked.
Such models include Return on Equity (ROE), Return on Assets (ROA), Return on invested capital (ROIC), Dividend Yield, Capital Gain, Accounting rate of return (ARR), and Internal Rate of Return (IRR).