When you start a business and apply for a startup loan, you may be asked for several

specific startup financial statements, including a startup budget, cost worksheet, pro
forma profit and loss statement, cash flow statement, and a pro forma balance sheet.
The balance sheet shows the value of the assets you have purchased for startup, how
much you owe to lenders and other creditors, and any initial investments you have
made to get started.
it’s an important document that serves as a snapshot of a business’ finances at a
specific point in time by comparing what you own to what you owe. This balance sheet
gives the lender a picture of the position of the business as of the startup date.
The balancing of this equation is important because, as a company’s assets grow, its
liabilities and/or equity also need to grow in order for a company’s financial position to
stay in balance.
maintaining a sound set of financial statements is not only key to securing capital but is
important for assessing the health of your business.
Therefore, as an entrepreneur, producing a set of financial statements sends a clear
message to investors, creditors and shareholders that you are serious about the growth
of your business.

Financial analysis is the process of evaluating businesses, projects, budgets, and other
finance-related transactions to determine their performance and suitability. It is used to
analyze whether an entity is stable, solvent, liquid, or profitable enough to warrant a
monetary investment.
External Analysis
This analysis is done by outsiders who do not have access to the detailed internal
accounting records of the business firm. These outsiders include investors, potential
investors, creditors, potential creditors, government agencies, credit agencies, and the
general public.
For financial analysis, these external parties to the firm depend almost entirely on the
published financial statements. External analysis, thus serves only a limited purpose.
However, the recent changes in the government regulations requiring business firms to
make available more detailed information to the public through audited published
accounts have considerably improved the position of the external analysis.
Therefore, If it is conducted externally, financial analysis can help investors choose the
best possible investment opportunities.
Internal Analysis
The analysis conducted by persons who have access to the internal accounting records
of a business firm it can be performed by executives and employees of the organisation
as well as government agencies which have statutory powers vested in them. Financial
analysis for managerial purposes is the internal type of analysis that can be effected
depending upon the purpose to be achieved.
Therefore, If it is conducted internally, financial analysis can help managers make future
business decisions or review historical trends for past successes.

Two main types of financial analysis:

First is the, fundamental analysis uses ratios and financial statement data to determine
the intrinsic value of a security. The end goal is to arrive at a number that an investor
can compare with a security's current price in order to see whether the security is
undervalued or overvalued.
Secend, Technical analysis assumes a security's value is already determined by its
price, and it focuses instead on trends in value over time. It attempts to understand
the market sentiment behind price trends by looking for patterns and trends
rather than analyzing a security’s fundamental attributes.

Horizontal analysis. This involves the side-by-side comparison of the financial results of
an organization for a number of consecutive reporting periods. The intent is to discern
any spikes or declines in the data that could be used as the basis for a more detailed
examination of financial results.

Vertical analysis. This is a proportional analysis of the various expenses on the income
statement, measured as a percentage of net sales. The same analysis can be used for
the balance sheet. These proportions should be consistent over time; if not, one can
investigate further into the reasons for a percentage change.
The other type of financial analysis are: short term analysis, valuation analysis,
multi-company comparison, and comparison.
Therefore, analysis allows the company to point out the problem aspects of the
business. Financial analysis is an important aspect in maintaining a successful
business.
Short term analysis. This is a detailed review of working capital, involving the calculation
of turnover rates for accounts receivable, inventory, and accounts payable. Any
differences from the long-term average turnover rate are worth investigating further,
since working capital is a key user of cash.

Multi-company comparison. This involves the calculation and comparison of the key
financial ratios of two organizations, usually within the same industry. The intent is to
determine the comparative financial strengths and weaknesses of the two firms, based
on their financial statements.

Industry comparison. This is similar to the multi-company comparison, except that the
comparison is between the results of a specific business and the average results of an
entire industry. The intent is to see if there are any unusual results in comparison to the
average method of doing business.

Valuation analysis. This involves the use of several methods to derive a range of
possible valuations for a business. Examples of these methods are discounted cash
flows valuation, a comparison to the prices at which comparable companies have sold,
a compilation of the valuations of the subsidiaries of a business, and a compilation of its
individual asset values.