FFA T1

• Why do people analyze?

  To try to make optimal decisions, and to forecast the future as objectively as possible.
• Analytical tools have changed, but the basic philosophy of decision making and forecasting has remained the same. We look at the present and analyze the past to forecast the future.
• Financial analysis


  The process of gathering financial and non-financial information, and analyzing their content, with the aim of drawing conclusions about the financial condition, value and prospects of a company or other objects of analysis, in order to make business and investment decisions and forecast future operations.
• Financial analysis


  1. Examination of the company and its business, financial and regulatory environment, gathering and classifying all available and relevant information for analysis

  2. Analysis using appropriate analytical tools, resulting in financial statements, ratios, trends and patterns

  3. Drawing conclusions, making recommendations, and making business or investment decisions
• Business analysis

  The process of identifying business needs, identifying potential problems in an organization, and coming up with solutions that will meet such needs or eliminate problems.
• Financial analysis, essential to our story, is right in the middle of the organizational hierarchy, along with other analytical procedures and processes (market analysis, microeconomic analysis, cost analysis, organizational analysis, etc.).
• Users of financial analysis


  • Internal users
  • External users
• Areas of application of financial analysis for internal users

  • Operational-level planning
  • Daily decision-making
  • Strategy development
  • Investment analysis
  • Planning and managing sources of finance
  • Assessment of business success
  • Incentives
  • Valuation
  • Communication towards investors

  
• Financial management in a company consists of three fundamental decisions: investment decisions, financing decisions, and decisions on working capital management.
• The investment decision should result in investment projects that maximize the value of the company, with an acceptable level of risk.
• The financing decision implies the establishment of the optimal capital structure of the company, i.e. the optimal combination of own and borrowed sources of financing.

  
• Working capital management decisions relate to the management of current assets and current liabilities, with the aim of maintaining an optimal level of liquidity and profitability.
• Financial analysis

  Assesses the business performance of the company whose finances they manage
• Due to the uncertainty of the future, a project can have different success rates and thus different scenarios of impact on the business and the value of the company
• Financial analysis


  Answers the question of how a project can impact the business and the value of the company

  
• Financing decision


  • Establishment of a structure of sources of funding
  • Management of the financial structure of the company

  
• Components of a company's financial structure

  • Short-term debt
  • Long-term debt
  • Equity
• Financial analysis


  • Allows creditors and investors to know and analyze the company to which they entrust their money
  • Assists financial management in managing the financing structure

  
• Investment decisions and financing decisions


  1. Made occasionally and have long-term consequences

  2. Company has a portfolio of investment projects

  3. Each project started by making an investment decision and establishing a structure of funding sources

  
• Working capital management


  • The third decision of financial management
  • Has the most operational character
• Decisions in working capital management

  • When, how and at what cost to buy materials
  • How to organize production and optimize costs
  • How much inventories of materials or finished products to keep
  • When and how to pay expenses
  • To whom to sell, at what price and terms of payment
  • How to charge for goods sold
• Working capital management decisions can greatly contribute to the success of the company or cause serious difficulties and even a business failure
• Financial management at the third organizational level

  • Assesses the company's business performance and prepares analysis for strategic decision-making
  • Assesses the effect of individual financial management decisions on business performance
  • Identifies, measures and manages business risks

  
• Modern corporations manage risk by following a holistic approach, thus establishing a special organizational function - ERM (enterprise risk management)
• Valuation and communication towards investors


  • The most complex area of financial analysis in the company
  • The purpose of companies is to create value for investors - shareholders or owners of equity
• The stock market price is formed when the supply and the demand for shares meet, and one of the key generators of supply and demand is the perception of the value of the company by investors
• Management presents the value of the company to different interested parties (stakeholders)

  1. Prepares financial analysis

  2. Negotiates with investors
• Financial analysis for presenting the value of the company

  • Analysis of the need for funds
  • Analysis of the company's financial position and performance
  • Risk analysis
• External users of financial analysis

  • Investors and creditors
  • Buyers and suppliers
  • The State and the public
  • Analysts and the academic community
• Investors


  • Seek to know the financial situation of the company, analyze the results of the previous period and forecast the strategic directions of future development and business
  • Objective is to know the intrinsic value of the company and compare it to the market price of its shares or equity

  
• Creditors


  • Interested almost exclusively in a company's ability to repay debt and pay interest
  • Focus on the value of the assets and the liquidity and solvency of the company
• Investors and creditors use the financial analysis presented to them by the management of the company, but also perform financial analysis independently

  
• Creditors


  Lend money to companies, with interest and a certain guarantee. Their risk is lesser than that of investors, and their focus is on the company's ability to repay debt and pay interest.
• Creditors


  • Focus on the value of the assets (as the ultimate guarantee for the payment of debt) and the liquidity and solvency of the company (the ability to meet short and long-term obligations)
  • Past business results and projections are of interest only if relevant to the company's ability to service debt
• Investors and creditors


  Use the financial analysis presented by the company's management, but also perform their own financial analysis independently, to obtain the most complete picture of the company's assets and operations and a more objective valuation

  
• Buyers and suppliers


  Business partners of the company, with a very intense and long-term relationship based on mutual trust built through correct day-to-day business and cooperation
• Buyers in the corporate market

  • Carefully analyze the companies they buy from, monitoring trends and changes in the structure of their balance sheets, analyzing financial indicators of liquidity, solvency and operational efficiency, and assessing the asset base and financial stability
• Suppliers in the corporate market

  • Focus on the liquidity and financial security of the partner company, as well as its asset base as the ultimate provision for the collection of their claims
• Buyers and suppliers are less interested in the profitability of partner companies' operations or in the movement of the market price of their shares, as long as they feel the companies operate a stable business and can forecast with relative confidence that they will continue to do so in the future
• The interest of the state and the public

  Manifold, as business is the fundamental strength of a society and the lever of its development. Governments in well developed countries organize careful macroeconomic management, closely monitor the conditions of business in the private sector, and take various measures to facilitate business for private companies and strategically direct their development.