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WHAT IS FINANCIAL ANALYSIS?

The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in.

GOALS OF FINANCIAL ANALYSIS


1. Profitability - its ability to earn income and sustain growth in both shortterm and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and nonfinancial indicators.

PRE-REQUISITES OF FINANCIAL ANALYSIS

o o o o

COST OF THE PROJECT DIFFERENT WAYS OF FINANCING THE PROJECT WORKING CAPITAL REQUIREMENTS TIME VALUE OF MONEY

COST OF CAPITAL

    

COST OF EQUITY SHARE CAPITAL COST OF PREFERENCE SHARE CAPITAL COST OF DEBT COST OF RETAINED EARNING WEIGHTED AVERAGE COST OF CAPITAL

SOURCES OF FINANCE

    

SHARE CAPITAL TERM LOANS DEBENTURE CAPITAL DEFERRED CREDIT MISCELLANEOUS SOURCES

WORKING CAPITAL REQUIREMENT AND FINANCING



I. II. III.

WORKING CAPITAL REQUIREMENTS RAW MATERIAL WORK-IN-PROGRESS OPERATING EXPENSES

WORKING CAPITAL REQUIREMENT AND FINANCING



I. II.

TYPES OF WORKING CAPITAL PERMANENT WORKING CAPITAL TEMPORARY WORKING CAPITAL SOURCES OF WORKING CAPITAL LONG-TERM FUNDS SHORT TERM FUNDS TRADE CREDIT


I. II. III.

EVALUATION OF PROJECT INVESTMENTS


I. II. I. II. III.

NON-DISCOUNTING TECHNIQUES PAY BACK PERIOD AVERAGE RATE OF RETURN DISCOUNTING TECNIQUES NET PRESENT VALUE METHOD PROFITABILITY INDEX INTERNAL RATE OF RETURN

RISK ANALYSIS OF PROJECT INVESTMENT


SOURCES OF RISK
I. II. III. IV. V.

PROJECT SPECIFIC RISK OR STAND-ALONE RISK COMPETITIVE RISK INDUSTRY-SPECIFIC RISK MARKET RISK INTERNATIONAL RISK

RISK ANALYSIS OF PROJECT INVESTMENT


TECHNIQUES OF RISK ANALYSIS:
SENSITIVITY ANALYSIS Investigation into how projected performance varies along with changes in the key assumptions on which the projections are based. SCENARIO ANALYSIS - process of estimating the expected value of a portfolio after a given period of time.

RISK ANALYSIS OF PROJECT INVESTMENT

TECHNIQUES OF RISK ANALYSIS


RISK ADJUSTED DISCOUNT RATE IT IS THE SUM OF RISK FREE RATE AND A RISK PREMIUM CERTAINITY EQIVALANT APPROACH CERTAIN CASH FLOW TO EXPECTED CASH FLOW

PRESENTED BY: PUNEET CHAWLA (1695) PURVI DANDIA (1697)