Financial Statement Analysis
October 3, 2014
Components and Processes of Business Analysis
Business analysis refers to the evaluation of a company’s prospects and potential risks associated with business decisions. Financial statements offer comprehensive information about any business. Accordingly, financial statement analysis is a fundamental component of business analysis. The major types of business analysis are credit, equity, management and control, analysis of mergers and acquisitions among others. Business managers do business analysis to optimize their managerial activities. Through business analysis, managers are better equipped to recognize threats and opportunities then respond appropriately. Also, business analysis is critical in company’s restructuring decisions. Before completing a merger, acquisition, or divestiture business managers do business analysis to make a decision on whether the contemplated action will enhance the combined value of the business or not. Moreover, business analysis is helpful in assessing the impact of financing decisions on future profitability and risk. In general, business analysis involves a number of components and processes that are critical for business decision-making. These components and processes of business analysis include business environment and strategy, accounting, finance, prospective and valuation analyses.
Fig: business analysis processes
Business Environment and Strategy Analysis
The business can draw qualitative conclusions about the future prospects of the firm from performing business environment and strategy analysis. Analyzing the company’s future prospects is an important aim of business analysis, even though it is a subjective and complex task. Analysis of the business environment seeks to identify and assess a company’s economic and industry circumstances. This includes analyzing the product, labor, and capital markets...