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Financial Analysis Tools

In: Business and Management

Submitted By jafa
Words 415
Pages 2
Financial Analysis Tools
Nicola Maclin
American Military University

Managers should have the ability to assess performance of decisions they have made or intend to make, through structured and robust financial analysis. Managers need tools to forecast or predict as they struggle to make decisions on a daily basis to execute business strategy for the company. Financial analysis tools can drive projections and predictions in many areas of the business, from planning for production and distribution to decisions on a product or service. Managers can use these tools to both assess and improve business performance. Performance evaluation is an important component of managing a business. Managers need feedback to evaluate how well they have accomplished business strategy and managed key business process. Managers need to be able to link strategy with profitability. Financial analysis tools can help provide that much needed feedback.
Financial data can be used to compute ratios analysis. These financial ratios gives managers the first look at the company’s vital signs and is used to assess a complete financial health and identify operational problems. Ratio analysis allows management to quickly and efficiently address concerns like: return on capital investment and the company’s profit margin. Ratio analysis can be an effective and useful management tool if ratios are calculated on items that are meaningful and where practical steps can be taken to make improvements in business operations based on the information the ratios reveal.
Horizontal analysis helps to identify abnormal changes over time. Horizontal analysis tracks long-term trends like the year –to- year changes or the growth rate for a ten-year period. Horizontal or dynamic analysis are comparisons over time, that shows trends and evolutions, can be particularly useful in tracking, monitoring and...

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