Financial Analysis - A 13-Step Guide (and tools) for your Enterprise

3 minutes

Financial analysis is a cornerstone of corporate finance and investment decision-making. It provides a comprehensive view of a company's financial health and guides stakeholders in making informed decisions. Here's a step-by-step guide to conducting a thorough financial analysis
Financial Analysis - A 13-Step Guide (and tools) for your Enterprise

13 Steps to conduct Financial Anaysis of your Enterprise

  1. Gather Financial Statements: Start by obtaining the company’s balance sheet, income statement, and cash flow statement. These documents are typically found in annual reports or on the investor relations section of the company’s website.

    • Tools:
      • QuickBooks, Xero, Sage for financial management
      • IBM Cognos Analytics for automated data collection

  2. Understand the Business: Familiarize yourself with the company’s industry, business model, and competitive landscape. This context is crucial for meaningful analysis.

    • Tools:
      • Crunchbase, CB Insights for industry insights
      • Market research databases like Statista

  3. Organize Data: Ensure the financial data is accurate and consistent. Organize it in a user-friendly format, checking for any errors or omissions.

    • Tools:
      • Microsoft Excel for data organization
      • Alteryx for data cleaning and preparation

  4. Calculate Ratios: Compute key financial ratios, such as liquidity, profitability, efficiency, and solvency ratios, to gain insights into the company’s financial health.

    • Tools:
      • Microsoft Excel for basic calculations
      • Tableau, Power BI for advanced analytics and visualization

  5. Analyze Trends: Examine financial statements over time (e.g., quarterly or annually) to identify trends in revenue, expenses, profit margins, and other vital metrics.

    • Tools:
      • Prophet for time series analysis
      • SAS for predictive analytics

  6. Benchmarking: Compare the company’s performance against its industry peers to gauge how well it’s doing relative to its competitors.

    • Tools:
      • Compustat, Bizminer for financial and industry benchmarks
      • Qualtrics XM for AI-driven benchmarking insights

  7. Assess Profitability: Evaluate factors such as gross profit, operating profit, and net profit margins to understand the company’s profitability and discuss with stakeholders how to address any issues.

    • Tools:
      • Traditional accounting software for profitability analysis
      • ProfitWell for real-time profitability analytics

  8. Evaluate Liquidity: Determine the company’s ability to meet short-term obligations by examining liquidity ratios.

    • Tools:
      • Microsoft Excel for ratio calculations
      • HighRadius for AI-powered liquidity insights

  9. Cash Flow Analysis: Review the cash flow statement to understand how the company generates and utilizes cash, focusing on operating cash flow and free cash flow.

    • Tools:
      • Float, Pulse for cash flow management
      • Cashforce for AI-based cash flow predictions

  10. Recommend Actions: Based on your analysis, provide actionable recommendations. This could include advice on investing in the company, avoiding it, or maintaining existing investments.

    • Tools:
      • Decision support systems like for action recommendations
      • Financial modeling software for investment analysis

  11. Write a Report: Document your findings and recommendations in a clear and concise report, utilizing charts, graphs, and tables to illustrate key points.

    • Tools:
      • Microsoft Word for writing reports
      • Canva for visual elements
      • Narrative Science for automated report generation

  12. Present Your Analysis: If necessary, present your analysis to colleagues, clients, or superiors, being prepared to explain your methodology and answer questions.

    • Tools:
      • Microsoft PowerPoint, Prezi for presentations
      • Beautiful.AI for automated slide design

  13. Update Regularly: Financial analysis is not a one-time task. Continuously monitor the company’s performance and update your analysis as new data becomes available, staying abreast of market and competitor changes.

    • Tools:
      • QuickBooks Online for real-time financial updates
      • Kensho for market and competitor analysis