Financial analysis is defined as an assessment of the
going concern, leverage and profitability of a business or a joint venture. It is often referred to as an accounting or financial statement analysis. To perform financial analysis, many analysts use models, and these models can be either univariate or multivariate.
One variable analysis (Univariate Analysis)
Two (or more) variable analysis (Multivariate Analysis) This type of financial analyzing is sometimes known as Multiple Discriminant Analysis. The most well- known of this model of financial analysis was devised by Edward I. Altman.
Multivariate financial analysis was created to try and establish a clearer and more accurate way of predicting business financial failure.
Multivariate financial analysis is a more complicated way to pinpoint the profitability or financial risks within a particular business structure.
Multivariate analysis uses different indicators of risk and profitability, resulting in a model that showed a companys risk of failure relative to a standard. A Multivariate financial analysis can be difficult and costly to run.
Some financial information may be deemed confidential and be unavailable to analysts.
It also takes far more time to be set up and tested successfully. Focus on data from a singular perspective.
More thorough approach.
Useful tool in diagnosing the financial health of any business. A mathematical formula developed in the 1960s Professor Edward Altman Attempts to express the chances of a public company going bankrupt within a two-year time period.
Z = A+B+C+D+E
Z = Score A = Working Capital/Total Assets B = Retained Earnings/Total Assets C = Earnings Before Interest & Tax/Total Assets D = Market Value of Equity/Total Liabilities E = Sales/Total Assets Working Capital = (3098) mil Total Assets = 50873 mil Retained Earning = 11107 mil EBIT = 7978 mil Market value of Equity = 21990 mil Total Liabilities = 39313 mil Sales = 79088 mil