The Objectives of the Financial Analysis Process
Distinguish between Computations and Analysis
Analysts often need to communicate the findings of their analysis in a written report. Their reports should communicate how conclusions were reached and why recommendations were made. For example, a report might present the following:
- the purpose of the report, unless it is readily apparent;
- relevant aspects of the business context, including:
- economic environment (country/region, macro economy, sector),
- financial and other infrastructure (accounting, auditing, rating agencies), and
- legal and regulatory environment (and any other material limitations on the company being analysed);
- evaluation of corporate governance and assessment of management strategy, including the company’s competitive advantage(s);
- assessment of financial and operational data, including key assumptions in the analysis; and
- conclusions and recommendations, including limitations of the analysis and risks.
An effective narrative and well supported conclusions and recommendations are normally enhanced by using 3–10 years of data as well as by analytic techniques appropriate to the purpose of the report.
