why do we need different tools for financial analysis

Defining Financial Analysis Tools Financial analysis tools are one of the most efficient ways that can be used for ensuring good profit from your investments. These financial analysis tools are highly helpful in evaluating the market and investing in a way so as to maximize the profit from the investments made. These financial analysis tools are useful for deciphering both internal and external information related to a specific business organization. Applications of Financial Analysis Tools Mainly, the financial analysis tools can be used for SWOT analysis.


The term SWOT is short for:
The economic conditions in the present day market are analyzed by management professionals with assistance from SWOT analysis performed by the various financial analysis tools. Each section of the evaluation process contains specific information which is helpful in gauging the general performance of a company. Moreover, financial analysis tools are really important for any investor for the company s performance shows direct impact on the price of a companyвs stock.


Types of Financial Analysis Tools There are different types of financial analysis tools available in the financial field. These tools are designed especially for carrying out specific functions. Among these different types of financial analysis tools, the is one tool which can be of good assistance to gauge the financial position of a company (can be easily performed using ). This financial analysis tool is helpful in subjective as well as objective measurement of special processes. Moreover, this financial tool is also helpful in evaluation of a companyвs overall return, the operating income, and the capital financing processes.


Another important financial analysis tool is which is used for assessing the intrinsic strengths and weaknesses of a business organization. Besides, this also sways the stock price of the company. Also, there are some professional agencies which use this type of financial analysis tools to generate advices for their clients. In addition to the aforementioned financial analysis tools, other important financial analysis tools include ratio analysis, trend analysis, comparative or horizontal analysis, and common size statement analysis or vertical analysis.


A vertical financial statement analysis is conducted using common size financial statements. A common size financial statement shows each item on a financial statement in a percentage figure for each statement line item. A vertical analysis gives managers a different option for reviewing financial information; managers may be more comfortable looking at percentages rather than dollar amounts.


The percentage figure represents how individual line-item amounts compare to the aggregate total of the financial statements. For example: business owners or managers may wish to know what percentage office supplies were out of the total expenses reported on May rsquo;s income statement. A common size statement would divide May rsquo;s total office supplies expense by the total expenses listed on May rsquo;s income statement. This percentage is then listed where the office supplies expense amount would be on the financial statement.