What is financial analysis?
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Financial analysis is the process of evaluating a company's financial health and performance by examining key indicators such as revenue, profitability, liquidity, and leverage.
Why is financial analysis important for businesses?
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Financial analysis is crucial for businesses as it helps assess a company's stability, growth potential, and overall financial well-being. It enables informed decision-making, resource allocation, risk mitigation, and identification of investment opportunities.
What are the key indicators evaluated in financial analysis?
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Financial analysis evaluates key indicators such as revenue, profitability ratios (e.g., gross margin, net profit margin), liquidity ratios (e.g., current ratio, quick ratio), and leverage ratios (e.g., debt-to-equity ratio).
How can financial analysis help identify investment opportunities?
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By conducting financial analysis, businesses can identify patterns, trends, and potential areas of growth or expansion within a company. This information can guide investment decisions and uncover opportunities for maximizing returns.
How does financial analysis mitigate potential risks?
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Financial analysis helps identify potential risks by examining a company's financial position, debt levels, and profitability. By understanding these risks, businesses can take proactive measures to manage and mitigate them, safeguarding their financial well-being.