Kenya Brief

What is Financial Analysis?

Financial analysis is the process of evaluating budgets and financial statements of a company to determine operational efficiency and long term suitability.

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Types of Financial Analysis

Horizontal financial analysis

Here the relevant year's financial statement is compared to a base year (usually the preceding year) financial statement in a horizontal format.

Vertical financial analysis

This analysis expresses the financial statement in absolute form (percentages) and can be used to compare company's performance to industry performance.

Trend financial analysis

This is where technical analysis is used to determine trends in multiple time periods.

Liquidity financial analysis

Here a company’s ability to meet short term obligations is eveluated. Several ratios can be used to determine company liquidity such as liquidity ratio, current ratio and quick ratio.

Solvency financial analysis

Here a company’s ability to meet short term obligations is eveluated. Several ratios can be used to determine company liquidity such as liquidity ratio, current ratio and quick ratio.

Profitability Financial Analysis

This analysis focuses on the going concern of the company by evaluating ability to cover long term obligations. Ratios such as debt ratio and equity ratio are used to determine a company's solvency status.

Scenario & Sensitivity financial analysis

Here target variables in the financial system are evaluated on how changes in known variables affect them.

Variance financial analysis

Budget estimates are compared to actual results and differences between the estimated and actual results are eveluated.

Validation financial analysis

This entails driving a Company's fair valuation. Discounted cash flow, comparable analysis and asset valuation are some of the methods adopted for valuation.

FP&A financial analysis

Here the financial,planning and analysis department of a Company is externally analysed to determine it's efficiency.

Kenya Brief

Why is Financial Analysis important?

      * Evaluate Company's Progress.
  • * Comparison To Company's Standards.
  • * Information Based Decision Making.

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