A financial analysis is a report that presents the current economic situation of a company – on the basis of figures from the accounting department. Larger companies usually have a more comprehensive reporting system, but can benefit from this form, too. Freelancers may not have the available data to create these assessments.
Many CEOs hand over creating a financial analysis to their tax consultant. The tax consultant then prepares a monthly evaluation. But even if you create the financial analysis yourself, a monthly cycle is recommended. In this way you can see the current expenditures and proceed promptly and have an overview of the economic efficiency of your own enterprise – and not only with the annual accounts. In addition, many lenders regularly demand an economic evaluation in order to be able to better assess a company and its economic situation. For the same reason, investors are also often interested in the financial analysis.
The basis of the financial analysis is the profit and loss account (P&L) and its contents. Financial analysis therefore includes all sales revenues, other income, and expenses. As a result, decision-makers of the company and external financiers have a detailed insight into the economic performance of the business. To ensure that financial analysis also presents developments, it makes sense to include the previous year’s figures. Changes can be recognized directly at a glance.