Contents

Executive Summary.....................................................................................................................................1

1. Introduction.......................................................................................................................................2

1.1. Business Analysis.......................................................................................................................2

1.2. Financial Analysis......................................................................................................................4

2. Business and Financial Analysis Techniques and Tools...............................................................5

2.1. Financial Analysis Techniques and Tool................................................................................5

2.2. Liquidity Ratios................................................................................................................................7

2.3. Profitability Ratios............................................................................................................................8

2.4. Activity Ratios...........................................................................................................................10

2.5. Solvency Ratios.........................................................................................................................12

2.6. Business Analysis Steps...........................................................................................................13

2.7. Business Analysis Techniques..................................................................................................15

3. Principles and Conventions that Determine Accounting Rules........................................................18

3.1. Accounting Principles................................................................................................................18

3.2. Accounting Conventions...........................................................................................................18

3.3. Accounting Concepts...............................................................................................................19

3.4. Accounting Conventions..........................................................................................................22

4. Conclusion........................................................................................................................................24

5. Summery...............................................................................................................................................25

References.................................................................................................................................................26

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Executive Summary
This report analysis the concept of business and financial analysis and outlines the importance of
both business and financial analysis. In a broader step this report discusses about the tools and
techniques used in the business and financial analysis to derive at the appropriate business
solutions. Some of the useful techniques of business and financial analysis will be looked in
discussed with clear examples.

Further this report will analysis the importance of accounting principles and accounting
conventions and how those concepts and conventions help the accounting world to present and
prepare a true and fair financial statements to their stakeholders.

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 1. Introduction

1.1. Business Analysis

According to International Institute of Business Analysis (IIBA), formed in 2003 as an

independent non-profit professional organization, defines business analysis as Business
Analysis is the practice of enabling change in an organizational context, by defining needs and
recommending solutions that deliver value to stakeholders. (Source:
http://www.iiba.org/Careers/What-is-Business-Analysis.aspx)

The purpose and objective of the business analysis is to understand the direction of the
organization and its ability to meet the goals of the organization. It entails the abilities the firm
needs to provide products to the external stakeholders. Business analysis try to identify
organizational goals connect to specific objectives. It will make a detail plan to help achieve the
goals and objectives. Business analysis defines how the stakeholders and different organizational
units interact.

In the beginning managing a project was like a battlefield and there were chaos in leading and
managing the business. A lot of work and efforts were put in but those were not always
productive. Latter organization invested in project management

This was a typical project life cycle method and this practice was not successful due to many
drawbacks in the system.

1. Project conflicts due to not identifying the requirements

2. Finding and fixing the requirement error consumed most of the project time
3. Projects exceeds its planned schedule due to poor estimation
4. Higher project cost incurred more than the estimation
5. Projects are cancelled before completion due to conflicts

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As a conclusion it was identified that the requirement analysis which is where most errors
originated and whose errors cost most to fix. As a result business world came up the concept of
business analysis to understand the requirement of a project as pictured below.

Business Analysis Project Management

Let us look at a real business world examples where lack of business analysis let to the business
to face the corporate failure.

Nokia

Until 2008 Nokia was a successful mobile manufacturer with an old operating system of
Symbian. After Apple launched its iPhone, Nokia started losing its market share gradually. Latter
in 2014 Nokia was sold to Microsoft and the brand was replaced with Microsoft Lumia. The
reason behind Nokias failure was identified as Nokia moved too slowly to stay up to date with
popular developments

Therefore, business analysis as the process identifies needs of a business and proposes solution
to those identified issues. Hence business analysis regarded as one of the most important integral
part for a successful business

1.2. Financial Analysis

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Financial analysis defined as a mechanism of identifying the financial stability and drawbacks of
an organization through establishing relationship between the line items of balance sheet and
income statement. Interpretation and analysis is performed through the information obtained
from those financial statements. Financial performance of a business entity is ascertained
through financial analysis, the key performance indicators are such as, liquidity, solvency,
profitability and efficiency. The basic purpose of financial analysis is to identify the weakness, to
arrive at recommendation and as well as to forecast the future of a business entity

The financial statements are:

1. Income statement
It is comely known as profit loss statement which reflects the financial performance of a
business entity. This is a very useful statement which highlights what has happened to a
business in a particular time period. It summaries revenue, expense, gain and lose for a
specified period of time.

2. Balance Sheet
It shows the financial position of a business entity as at certain point of time, which
summarizes the business assets, liability and shareholders equity at a specific point in
time. Balance sheet will indicate what the business owns and owes and the amount
invested in the business by their shareholders.

Financial analysis examines financial statements figures and the trends in those numbers over a

time. One purpose of the financial analysis is to evaluate the past performance of the business

entity and to predict the future performance. Another purpose of financial analysis is to identify

the problematic area and to arrive at the solution. In short, financial analysis is both diagnosis

and prognosis process for a business entity.

2. Business and Financial Analysis Techniques and Tools

2.1. Financial Analysis Techniques and Tool

There are various types of financial analysis. They are briefly explained below

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 1. External Analysis: The external analysis performed based on the published financial
statements by external agencies who does not have access to the accounting information,
such as stock holders, bankers, creditors, general public and other rating agents

2. Internal Analysis: It is performed by the internal management of an organization in order

to provide meaningful information to the top management in to assist in the decision
making process

3. Short Term Analysis: Analysis performed on working capital, it involves in analyzing

both current assets and current liabilities in order to evaluate the liquidity position of the
organization

4. Horizontal Analysis: Horizontal analysis is involving analysis financial statements of

number of years. It is a comparative financial statement analysis, which is referred also as
dynamic analysis

5. Vertical Analysis: It is mainly performed when financial ratios are to be calculated for
one year only.

6. Trend Analysis: Under this analysis, ratios are calculated for different periods using
financial statements and comparison is made accordingly. This analysis enables the
management to identify the trend of the business. It is a useful analysis to understand and
discover the health of the business and to improve the business.

7. Ratio Analysis: This is the most common and popular way of analyzing financial
statements. It is an important and most widely used tool for financial analysis. It
identifies the relationship between the individual line items and tries to provide
meaningful information for decision makers.

Current asset ratio

Liquidity ratios
Quick asset ratio

Profitability ratios Gross profit (GP) ratio

Net profit (NP) ratio

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 Return on Capital employed
Return on Equity

Inventory turnover ratio

Receivables turnover ratio
Activity ratios
Average collection period
Asset turnover ratio

Debt to equity ratio

Solvency ratios Current assets to equity ratio
Capital gearing ratio

Thus, the key ratios can be used in the line with above discussed techniques to evaluate the
overall company performance. This is likely to make it easier to understand the usefulness of
those techniques and how effectively used to derive at a solution. In order to elaborate the
usefulness of those techniques, I have used five years financial data of RCL to explain the
concept

2.2. Liquidity Ratios

Liquidity ratios show the liquidity position of the company based on its asset and liability. It is a
very important ratio where a company can understand the financial position of the organization
and quick remedial action can be taken to improve the liquidity position of the company

2.2.1. Current Asset Ratio (Current Asset/Current Liability)

This ratio reflects the number of times short-term assets cover short-term liabilities and it is a
good measure to identify the company's ability to service its current obligations. A higher
number is preferred because it indicates a strong ability to service short-term obligations.

Current
Years Current Current Asset
assets Liability Ratio

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2012 3.72 3.13 1.19
2013 4.29 3.43 1.25
2014 11.38 9.33 1.22
2015 12.07 9.26 1.30
2016 13.16 9.14 1.44

The current ratio of RCL is 1.44 in 2016 and 1.30 in 2015 indicated the company's ability to
service short-term obligations is at a satisfactory level. The historical analysis indicates that the
company has maintained a very good position in terms of current asset ratio during last 5 years.

2.2.2. Quick Asset Ratio ((Current asset Inventory)/Current liability)

This ratio is also known as the acid test ratio, it the organization ability to meet the short term
liability with the immediate current asset (Current asset Inventory Pre-paid expense). The
less liquid current asset like inventory and pre-paid expenses are removed when calculating
quick asset ratio as it is considered to be more reliable ratio than the current asset ratio. Higher
number indicates that company is in a strong position to meet its short term obligation.

Quick
Years Quick Current Asset
Asset Liability Ratio
2012 1.8 3.13 0.58
2013 2.11 3.43 0.62
2014 4.54 9.33 0.49
2015 4.94 9.26 0.53
2016 6.07 9.14 0.66

RCL has maintained a healthy quick asset ratio over the last 5 years and it has significantly
improved its quick asset ratio over the years. In 2016 quick asset ratio was 0.66 when comparing
to 2015 there was a 0.13 improvement in the ratio (2015 - 0.53).

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2.3. Profitability Ratios
It measures company profitability and its performance. When a company displays a healthy
profitability ratio, it is a good indication that company unlikely go out of the business and it
indicates a very good sustainability in times of economy turns down.

2.3.1. Gross Profit Margin (Gross Profit/Total Sales Revenue)

It measures the gross profit earned over the sales and measures the availability of sales revenue
to cover its operating expense. It is a very important measure which identifies the initial issue of
the organization.

Gross Gross
Year Revenue
profit margin
2012 6.96 3.29 47%
2013 7.61 3.34 44%
2014 19.75 6.34 32%
2015 22.38 7.31 33%
2016 24.9 9.56 38%

Year on Year RCL gross profit margin was slowly deteriorated, but in 2016 there is a slight
improvement in gross profit margin when compare to 2015 financial year.

2.3.2 Net Profit Margin (Net Profit/Total Sales Revenue)

Net profit margin is an important measure which indicates how well the business is performing during a
financial year. Since net profit margin is expressed as a percentage it helps the analysts to compare
against the previous year and that with the competitors to measure the company performance.

Net
Year PBT Revenue Profit
Margin
2012 2.01 6.96 29%
2013 1.73 7.61 23%
2014 1.98 19.75 10%
2015 3.64 22.38 16%
2016 5.71 24.9 23%

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2016 seems to be a very good progressive year for RCL where the company was able to improve
its net profit margin by 7%. There is a significant improvement in the way company has
managed its operational and non-operational cost.

2.3.3. Return on Capital Employed (ROCE) & Return on Equity (ROE)

ROCE (Earnings before Interest and Tax/Total Capital Employed) measures on how well the
company uses the capital to generate the income and efficient use of capital. ROCE is a long
term profitability ratio since it measures how efficiently the company has managed its long term-
financing to increase the shareholders wealth.

Year PBT Revenue ROCE

2012 2.01 8.35 24%
2013 1.73 10.19 17%
2014 1.98 24 8%
2015 3.64 25.84 14%
2016 5.71 29.99 19%

RCL has maintained a healthy ROCE during last 5 years. There was a drop in ROCE during
2014 that needs to be investigated but RCL has recorded 19% ROCE in 2016 which is 5% higher
than 2015.

2.4. Activity Ratios

2.4.1. Inventory Turnover Ratio and Inventory Turnover Days

Inventory turnover ratio (Cost of sales/Inventory) is an activity ration which measures the
number of times per period a business sells and replaces its entire batch of inventories. This
indicates how efficiently a business is managing its inventories. Generally high inventory
turnover period reflects the efficient management of inventory

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Inventory turnover days (Inventory/(Cost of Sales/360)) this is inverse of inventory turnover
ratio where it measures the inventory turnover in number of days

Inventory
Cost of Inventory
Year Inventory Turnover
Sales Turnover
Days
2012 3.66 1.92 1.91 188.85
2013 4.27 2.18 1.96 183.79
2014 13.41 6.84 1.96 183.62
2015 15.07 7.13 2.11 170.33
2016 15.35 7.09 2.17 166.28

Initially RCL had struggled in managing the inventory but gradually due to proper inventory
management system, with the expansion of business and new market opportunity RCL was able
to significantly improve the inventory turnover ratio.

2.4.2. Receivable Turnover Ration and Average Collection Period

This ratio measures the average number of period that the company takes to collect or receive
cash from its receivable. Lower numbers of days are preferred. An increase in the number of
days in the receivable collection period indicates that the increased possibility of late payment
from the customer or default of paying the outstanding. When receivable collection days are
increasing the company need to bear additional finance cost since it needs to invest additional
finance to maintain the working capital.

Receivables
Accounts Receivables
Year Revenue Turnover
Receivables Turnover
Days
2012 0.87 8.35 45 8.0
2013 1.18 10.19 56 6.4
2014 3.31 24 60 6.0
2015 2.75 25.84 44 8.1
2016 2.54 29.99 37 9.8

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The receivable turnover ratio was recorded as 9.80x time in 2016 when comparing to 2015 there
is significant improvement of 1.66x times. RCL continuously improved its receivable turnover
period throughout last 5 years.

2.4.3. Asset Turnover Ratio (Total Sales/Total Asset)

Asset turnover ratio is an efficiency ratio and it measures the company ability to generate sales
from its assets. In other words how well company uses its assets to generate sales. Always higher
number is preferred since it indicates that the company uses and manages its asset effectively to
generate more sales.

Total
Asset
Asset (net
Year Revenue Turnover
book
ratio
value)
2012 8.35 11.48 0.61
2013 10.19 13.62 0.56
2014 24 33.33 0.59
2015 25.84 35.1 0.64
2016 29.99 39.13 0.64

Asset turnover ratio for RCL is 0.64 for 2016 and same was recorded in 2015. Though there was
no significant improvement in asset turnover ratio during 2016.

2.5. Solvency Ratios

It is a key ratio which is used to Measure Companys ability to meet its debt and other
obligations. Solvency ratios will indicate whether the company has sufficient cash flow to meet
its long term and short term obligation. If the solvency is not healthy and it indicates that there is
high probability that company will default on its debt obligation.

2.5.1. Debt to Equity Ratio (Total Liability/Shareholders Equity)

This ratio compares companys total debt to equity. Debt to equity ratio shows the capital
structure of the company and the percentage of creditors contribution (debt) and percentage of

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investors contribution (Shareholders). The higher debt to equity ratio indicates that company
uses more debt financing than the investor financing.

Debt to
Year Equity
Ratio
2012 0.75
2013 0.62
2014 2.21
2015 0.95
2016 0.74

In the 2104 RCL recorded the highest debt to equity ratio of 2.21 mainly due to expansion of
market. After that RCL gradual reduced its debt to equity ratio as 0.95 and 0.74 respectively
during the 2015 and 2016.

2.5.2. Gearing Ratio (Long term Debt/Capital Employed)

Gearing ratio measures the proposition of browed fund to shareholders equity. Gearing ratio
highlights the financial risk that the business exposed to. High gearing represents that companys
capital structure made up with high debt in comparing to equity component. High gearing
indicates company uses the debt finance to run is continuous operation. During financial crisis or
economic downturn the company will find difficult to repay its debt. Financial and lending
institutions are highly concerned about high gearing ratio since high gearing ratio indicates that
the company will unlikely to meet its debt obligation .

Year Gearing
2012 19%
2013 16%
2014 28%
2015 23%
2016 18%

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RCL has maintained 18% of gearing ratio during 2016 which is 5% lower than 2015. During
2016 RCL has paid some of its long term debt to improve its gearing ratio.

2.6. Business Analysis Steps

When an organization is starting a project or when they wanted explore a new opportunity in the
existing project, it is always recommended to beginning the process with the proper business
analysis. A good and sound business analysis will lead to successful results that organization has
intended to reach.
For a business analysis following steps need to be followed:

1. Gathering Information
This is the very first step a business analyst needs to perform. This requires a lot of
ground work and understanding of the environment and process of the business.
The business analysts should determine circumstances and events that impact the
business. In order to determine impactful events and to analysis the environment, an
analyst can utilize PESTLE or Porters five forces techniques.

2. Identification of Stakeholders
Stakeholders are the one who signs off the requirements, project priorities and make the
important decision on the projects. This is very important to identify the stakeholders of
the project before moving into the next stage of the project. Example of stakeholders of
the project are:
1. Owner - Project sponsor
2. Manager Responsible for monitoring the process of the project
3. Employees - User group of the project
4. Suppliers Interaction required to get the input for the completion of the project
5. Customers- End users of the project

3. Discover the Business Objective

Setting up or determining the project objective and documenting them will help the
business analyst and project manager to stay focus on the project and to monitor the
project deliverables.

Few techniques help in establishing the business objective

1. SWOT analysis
2. Benchmarking
3. Braining storming

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 (Some of the techniques will be discussed in detail later in this chapter)

4. Evaluate the Option

To achieve the business objective it is necessary to choose the critical path among the
options available to achieve the objective.

Brain storming and panel discussion will help the team to find out the best path to
achieve the target

5. Scope Definition
Based on the project objective and team discussion, a project scope will be defined. A list
of project development goals will be listed in the project scope documents and the area
not covered also will be identified in the scope definition.

6. Business Analyst Detail Plan

Business analyst and the project owner will provide detail timelines of project
deliverables to the development teams

7. Define Project Requirements

It is important that business analyst clarifies the project requirements to the project owner
and get the approval for the requirements to deliver them to development team.

8. Support Implementation
The business analyst will involve in the technical implementation of the project and
ensure all the objectives are aligned according the document.

Some of the activities during the support implementation stage

1. Review and align the technical deliverables according to the documents
2. Collect the feedback and passes to the development team
3. Manages the changes
4. Facilitate the user acceptance once the requirement implementation is completed

9. Evaluate the Value Added by the Project

In order to ensure the achievement of business objective constant observation of outcome
through the project is vital. A proper document needs to be maintained of the outcome of
the project for review

2.7. Business Analysis Techniques

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 There are various techniques a business analyst will use to gather information and
determine the business objective

1. Balanced Scorecard
Balanced scorecard is a strategic planning and management tool used to align the
business activities with that of organizations objective. This will act as an internal
and external communication tool and to monitor the organization performance against
its strategic goal

Important aspects of business scorecard

1. Financial Indicator How do we present ourselves to share holders
2. Customers How customers perceive
3. Innovation What should be done to grow and prosper
4. Internal What is the important process to us

2. Benchmarking
Comparing the performance of an organization with that of another organization to
determine the performance of the organization is called benchmarking. The
organization externally compares their performance and product with those
competitors and with the high performing organization to identify the performance
gaps.

3. Change Management
Change management is an organizational process that aimed at assisting and
accompanying its stakeholders to embrace the changes in their business environment.
Change management is application of certain set of tools, process and skills to
embrace the change
Kotters 8-step Change Model is a useful tool for a change management
1. Create urgency
2. Form a powerful coalition
3. Create vision for change
4. Communicate the vision
5. Remove obstacles
6. Create short-term wins
7. Build on the change
8. Anchor the change in corporate culture

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 There are some other techniques and tools used for a successful change management
like ADKAR (Awareness, Desire, Knowledge, Ability, and Reinforcement) model
used to identify and aid the change management..

There are some other business analysis techniques which helps the business analysts to perform
their tasks namely

1. Fishbone Analysis: Graphical representation of cause and effect of a change

2. Open Space Technology (OST): It is a unstructured approach for change management
3. Problem Tree Analysis: Finding solution through mapping out the cause and effect of
a problem
4. SWOT Analysis: SWOT means, identifying Strengths, Weakness, Opportunities and
Threats of an organization and to arrive at business solutions for those strategic issue.

3. Principles and Conventions that Determine Accounting Rules

3.1. Accounting Principles

According to the American Institute of Public Account Accounting principles are the general

laws or rules adopted or professed as a guide to action. It is a basis of conduct or practice . In

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other words it a body of rules and regulation commonly associated with the theory and

procedures of accounting which is commonly accepted by the accountants. It explains on how

and why certain categories of transactions should be treated in a particular manner.

3.2. Accounting Conventions

Accounting convention may be defined as a common or generally accepted accounting practice

which is developed either by general agreement or common consent among the accountant. In

other words it is a general agreement on the usage and practices in the financial world, example

GAAP Generally Accepted Accounting Principles. Accounting Principles, Concepts and

Conventions

Business Entity Concept

Going Concern Concept
Money Measurement
Concept
Accounting Period Full Disclosure
Concept Convention
Cost Concept Materiality Convention
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Realization Concept Conservatism Convention
Matching Concept
Accrual Concept
3.3. Accounting Concepts
1. Business Entity Concept
This concept considers business and its owners are two different separate entries. The
accounts are prepared from the point of view of business. The purpose of this concept is
to eliminate the personal transactions from the business transaction.

Example Mr. X bought a car for his personal use, and this transaction will not be recorded
in the books of WR since it is a personal transaction of Mr. X

2. Going Concern Concept

It is assumed that the entity will continue to operate for foreseeable years and all the
transactions are recorded in going concern basis.

3. Monetary Measurement Concept

In accounting transactions are recorded only if it could be expressed in terms of money.
Transactions of monetary nature are recorded. If any transaction cannot be translated in
terms of money, those transactions will not be considered for accounting purpose.
Transactions of qualitative nature, even though with great importance to the business will
not be considered. For example team work, skill, attitude, innovativeness and etc. will not
be recorded in accounting though it is an important for a business success, since those are
with qualitative nature and cannot be expressed in monetary term.

4. Accounting Period Concept

In order to measure the financial results of a business periodically, entire life of a
business entity is divided into time intervals in order to measure the profit/losses are
known as accounting periods. Accounting periods could be annual, semi-annual, quarters
and months. The accounting records are prepared based on the need of legislation and
according to the stakeholders requirements.
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 5. Cost Concept/Historical Cost Concept
An Asset acquired by an entity is recorded in the books of account at historical cost, i.e.
actual price paid to purchase the asset. The market price of the asset will not be
considered under this concept. Historical cost concept is objective and it could be
verifiable and justified by going concern concept. The market value of the asset is
ignored since it is very difficult to determine or value the current value of the asset and
difficult to keep the track of up down of the market price.

6. Dual Aspect Concept

According to William Pickles Every business transaction has two fold effects and it
affects two accounts. In order to keep a complete record of a transaction, one account is
bound to be debited and the other is bound to be credited. Recording this two-fold effect
of each transaction is called as Double Entry Concept. In a simple word every
transaction should have twofold effect to the extent of same amount. The system of
recoding is known as Double Entry System. This concept resulted the accounting
equation as

Asset = Capital + Liability

Example
Cash sales $100
Debit Cash Account $100
Credit Sales Account $100

7. Realization Concept/Revenue Recognition Concept

Revenue means addition to the capital as a result of business operation. Therefore profit
or revenue should be recognized when goods or service are provided or transferred to
customers. It is not appropriate to recognize profit or revenue when order is received or
when customer pays for the service or goods.

8. Matching Concept
Revenue earned for a particular period will be matched with all the associate cost of that
particular period to determine the net profit of that period. According to the concept, in

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 order to match the associated cost, first revenue should be recognized then costs incurred
for generating that revenue will be recognized.

For example WR bought 100 units of XY for $1000, during the period they sold 90 units
for $1350. In order compute the profit for the period, revenue generate from 90 units and
all cost associated for 90 units will be recognized and profit will be computed according
to the matching principle. It is incorrect to consider 100 units cost to derive the profit for
90 units.

Revenue (90 Units) 1350

Purchase (100 Units) 1000
Closing Stock (100 -90) @$10 (100)
Cost of Sales (900)
Profit 450

According to the above example 90 units revenue matched with 90 units cost though
during the period WR purchased 100 units.

9. Accrual Concept
According to the accrual concept revenue or expense is recorded as it incurred not cash is
received or not, cash paid or not during the accounting period.

For example, WR pays rent for its store one month in arrears. The monthly rental for the
store is $200. At the end of the 12 month period WR paid $2200 as a rent expense, but
when computing profit and loss, the rent expense for 12 month $2400 should be taken
into consideration regardless of the amount paid or not.

3.4. Accounting Conventions

1. Full Disclosure Convention

Financial statements and their disclosures should disclose all the information that is
relevant and material to the users of the financial statement in order to understand those
statements and to make any economic decision based on the information provided. All
relevant and material events which make a difference to financial statement users should
be disclosed appropriately

2. Materiality Convention
According to American Accounting Association An item should be regarded as material
if there is reason to believe that knowledge of it would influence decision of informed

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 investor It is an exception to the convention of full disclosure. If the materiality
convention is not practice the investors will make wrong decision based on the
information provided.

3. Consistency Convention
Adopted accounting practices and methods should be consistent from one accounting
period to another. Whatever the accounting principles and practice followed by the
business entity should be followed on a consistent basis from year to year. This
convention prevents the business entity to choose different accounting practices one year
to another.

For example, if WR elects straight line depreciation method to depreciate its asset for an
accounting year, the same accounting estimation should be followed consistently
throughout the next accounting period too.

4. Conservatism Convention/Prudence Convention

All the anticipated losses should be recorded and recognized but all the anticipated gains
should be ignored until it is realized. This convention encourage the business entity to
review its financial statement and make appropriate provision for all loses though the
amount cannot be determined with certainty

Provision of doubtful debt and provision for slow moving inventories are examples for
conservatism convention

4. Conclusion

Business analysis and financial analysis are two important aspects for a business to be successful
in the rapidly changing business environment. For a business to be success, it needs to look at
itself and needs to identify its strengths and weakness in the lights of its past performance and
present and future opportunities that are available in the market. Both business and financial
analysis assist both growing and big organizations to look themselves inwardly and to identify

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that they are achieving their strategic goals and are they are responding appropriately to the
changing environment.

If we carefully analyze the most of the corporate failures (Kodak, Nokia and Enron), it is either
not responding to the market change (Rapid development in the technology) or inappropriate
presentation of financial statement concealing the misappropriation of financial assets.

A methodical and appropriate business and financial analysis will lead the business to explore
and expand to the new avenue of market and to diversify the portfolio to mitigate the
shareholders risk,

Following proper and accepted accounting principles and accounting convention will ensure true
and fair view of published accounting statement, which will increase the transparency of the
reported financial transaction.

5. Summery

Business analysis is a process of identifying business needs and arriving at the solution. It is a
tool which connects all the stakeholders. Financial analysis is defined as a mechanism of
identifying the financial stability and drawback of an organization using financial statements.
Both these analysis are considered to be very important analysis for a business to grow in a
rapidly changing environment.

Both these analysis use various kind of methods and techniques to deliver the required and
expected results to the organization. There are various types of financial analysis namely,
external analysis, internal analysis, short-term analysis, horizontal and vertical analysis, trend

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analysis, ratio analysis and etc. Ratio analysis is the widely and commonly used financial
analysis technique to evaluate the organizational performance; ratio analysis mainly look into
liquidity, profitability, efficiency and solvency of an organization.

Business analysis involves nine steps to gather information, namely information gathering,
identifying stakeholder, discovering the business objective, evaluating the option, defining the
scope, drafting detail plan, defining the detail plan, support implementation and evaluating the
value added by the project. There are various techniques used during business analysis process,
namely balance scorecard method, benchmarking method, business process mapping, change
management, fishbone analysis, problem tree analysis and etc. These techniques help the
business to identify their performance gap and take appropriate strategic action to improve its
performance

Accounting principles are body of rules and regulation commonly associate with the theory and
procedures of accounting which is commonly accepted by the accountants. Accounting
convention is a common or generally accepted accounting practice which is developed either by
agreement or common consent among the account. These accounting conventions are accepted
and followed universally. Example of accounting principle is business entity concept, going
concern concept, money measurement concept, accounting period concept, Accrual concept, dual
aspect concept and etc. Common example for accounting convention is full disclosure
convention, materiality convention, consistency convention and conservatism concept.

References
1. Debra Paul and Donald Yeates (eds). (2010) Business Analysis 2nd ed., BCS.

2. International Institute of Business Analysis, 2017, http://www.iiba.org/Careers/What-is-

Business-Analysis.aspx

3. (2014), Types of Business Analysis

4. Altman, E. (1968), Financial Ratios, Discriminant Analysis and the Predicion of

Corporate Bankruptcy, Journal of Finance (September)

5. Chen, K.H. and T.A. Shimerda (1981), An Empirical Analysis of Useful Ratios,
Financial Management (Spring): 51-60.

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