What are the methods of financial analysis

There are many methods of financial analysis, including: horizontal analysis, vertical analysis, trend analysis, ratio analysis, factor analysis.

(A) horizontal analysis method

Horizontal analysis method, refers to the information reflecting the financial position of the enterprise reporting period (that is, the accounting statement information) and reflecting the financial position of the enterprise in the previous period or the history of a certain period of time to compare the information, the study of the enterprise's business performance or the development of the financial position of the development of changes in a method of financial analysis.

The basic point of the horizontal analysis method: the statement of resources in different periods of the same data for comparison.

Types of Horizontal Analysis:

There are two specific methods of Horizontal Analysis: Comparative Analysis (Comparative Financial Statements) and Index-number Trend Analysis (Index-number Teries)

1, Comparative Analysis

Comparative Analysis is the comparison of Comparative analysis is a comparative analysis of the financial statements of listed companies in two years, aiming to find out the differences between individual items from year to year, in order to find out some kind of trend.

In comparative analysis, in addition to individual items to study the trend, but also for the relationship between specific items to analyze in order to reveal hidden problems.

For example, if it is found that the cost of goods sold increased by 14 percent when sales increased by 10 percent, that is, costs increased faster than revenues, this is contrary to our usual assumption that sales revenues and cost of goods sold increase in the same proportions when product and raw material prices remain constant.

Now that there is such a discrepancy, there are generally three possibilities:

One, the price of the product has fallen;

two, the price of the raw materials has risen;

three, the efficiency of production has decreased.

To determine the specific causes, which requires further analysis with the help of other methods and information.

2, index trend analysis

Applicable to the need to compare financial statements for more than three years.

The specific method of index trend analysis is to analyze the financial statements of consecutive years, one of the year's data as the base period data (usually the earliest year as the base period), the base period data value is set at 100, the other years of data converted to the base period data as a percentage of the data, and then compared to analyze the size of the relative number of the trend of the relevant items.

When using the index to note is that the trend of the percentage change obtained by the index are to the base period as a reference, is the relative number of comparisons, the advantage is that you can observe the changes in the value of a number of periods, to derive a trend of changes in the value of a period of time. If inflation is taken into account, dividing the index by the inflation rate gives a more illustrative picture of the actual change in the amount after removing the inflation factor.

This method is useful when using past trends to make projections about future values, and also to look at the magnitude of the change in values and identify important changes that point the way to the next step in the analysis.

(ii) Vertical analysis

Vertical analysis is a method of analysis, it can be used in the analysis of financial information. In a financial statement, the data of each item in the table is compared with the overall (or the total number of statements) to find out the position, importance and changes of the item in the overall.

Vertical analysis gives an idea of whether there has been developmental progress in the operations of the business and the extent and rate of its developmental progress. Therefore, it is necessary to combine horizontal and vertical analysis in order to give full play to the positive effects of financial analysis.

Steps of Vertical Analysis Method

(1) Calculate the proportion of each item in the table in the whole;

(2) Judge the position of the item in the statement and how important it is through the proportion;

(3) Compare the proportion with the proportion of the data in the base period or the previous year, and observe the trend of change.

Accounting statements, after being processed by the vertical analysis method, are also called same-measure statements, overall structure statements, and *** year-on-year statements.

(C) trend analysis

Trend analysis, also known as horizontal analysis, is a method of comparing the same indicators in two or more consecutive periods of the financial report, to determine the direction of change, amount and magnitude of the change in its increase or decrease, in order to illustrate the trend of change in the financial position and operating results of the enterprise.

Trend analysis of the specific use of the following three ways:

1, the comparison of important financial indicators

It is the same indicators or ratios in different periods of financial reports for comparison, direct observation of the changes in its increase or decrease and the magnitude of change, to examine the development trend, predict its prospects for development.

There are two ways to compare financial indicators in different periods:

(1) Fixed-base dynamic ratio. It is a dynamic ratio calculated by taking the amount of a certain period as a fixed base period amount. The formula is:

Fixed Dynamic Ratio = Analyzed Period Amount ÷ Fixed Base Period Amount

(2) Ring Dynamic Ratio. It is the amount of the previous period for each analysis period for the amount of the base period and the calculation of the dynamic ratio. The formula is:

Cyclical dynamic ratio = the amount of the analysis period ÷ the amount of the previous period

2, the comparison of accounting statements

Comparison of accounting statements is the amount of consecutive periods of accounting statements are listed side by side, compared with the amount of the same indicators of the change in the amount of money and the magnitude of change in order to judge the financial position of the enterprise and the results of the development and change of a method of operation.

3, comparison of the composition of accounting statements

This is based on the development of the comparison of accounting statements. It is an overall indicator in the accounting statements as 100%, and then calculate the percentage of its constituent items of the overall indicator, so as to compare the percentage of each item changes, in order to determine the trend of financial activities.

But in the use of trend analysis, we must pay attention to the following issues:

(1) for the comparison of the indicators of each period, the caliber of calculation must be consistent;

(2) remove the impact of occasional items, so that the data as an analysis of the normal operating conditions;

(3) the application of the principle of exceptions, should have significant changes in a certain (3) Apply the principle of exception, should be a significant change in an indicator to focus on the analysis, to study the reasons for its generation, in order to take countermeasures to avoid harm.

(D) ratio analysis

Ratio analysis refers to the use of financial statements in the ratio of two related values to reveal the financial position of enterprises and operating results of an analysis of 1, the composition of the ratio.

1, the composition of the ratio, also known as the structure of the ratio, is an economic indicator of the components and the overall ratio, reflecting the relationship between the part and the overall. The formula is:

Composition ratio = the amount of a component / the overall amount

The use of the composition ratio, you can examine the overall formation of a part of the formation and arrangement of the reasonable, in order to coordinate the financial activities.

2, efficiency ratio. It is the cost of an economic activity and the ratio of income, reflecting the relationship between inputs and outputs. The use of efficiency ratio indicators, you can make comparisons of gains and losses, to examine the results of operations, evaluation of economic efficiency.

3, the relevant ratio. It is based on the objective interdependence of economic activities, interlinked relationships to a project and its related but different projects to compare the ratio, reflecting the interrelationship of economic activities. Such as the current ratio.

Ratio analysis method has the advantage of simple calculation, the results are easy to judge, and can make certain indicators in different sizes of enterprises for comparison, and even to a certain extent beyond the differences between the industry for comparison. However, when using this method, the use of ratio indicators should pay attention to the following points:

(1) the relevance of the comparison items. Calculation of the ratio of the sub-item and the parent item must have relevance, the comparison of irrelevant items is meaningless.

(2) the consistency of the caliber of comparison. Calculate the ratio of the sub-item and the parent item must be in the calculation of time, scope and so on to maintain the caliber of consistency.

(3) the scientific nature of the standard of measurement. The use of ratio analysis, the need to choose a certain standard and its comparison, in order to make an evaluation of the financial situation of enterprises. In general, the scientific and reasonable comparison standards are: ① predetermined goals, ② historical standards; ③ industry standards; ④ recognized standards.

(E) factor analysis

Factor analysis, also known as factor replacement, chain substitution, it is used to determine the extent of several interrelated factors on the analysis of the object of a comprehensive financial or economic indicators, an analytical method.

The starting point of this method is that when there are a number of factors affecting the analysis of the object of action, assuming that the other factors are unchanged, the sequence to determine the impact of changes in each of the factors alone.

Extended information:

Basic requirements for financial analysis

1, the object of financial analysis - China's listed companies annual or interim financial reports in full

China's listed companies financial reporting requirements, listed companies should be regularly announced in the designated website for the public in the annual or interim financial reports in full, and at the same time in the designated newspapers ( such as China Securities Journal, Shanghai Securities News, Securities Times, etc.) to synchronize the publication of the summary of the report.

Because the content and form of the financial reports of listed companies published in the newspapers and magazines are subject to restrictions, and there are so-called "important reminders".

The Board of Directors of the Company guarantees that the information contained in this report does not contain any false records, misleading statements or material omissions, and is individually and jointly liable for the truthfulness, accuracy and completeness of its contents.

This summary of the annual report is extracted from the annual report and investors should read the annual report for details." Therefore, irrespective of whether such summary of the report has in fact resulted in misleading statements such as omissions, misrepresentations, etc., either intentionally or unintentionally, the Board of Directors is thereby partially exempted from liability.

From the perspective of the principle of soundness, the object of financial analysis should be based on reliability, not just the difficulty of obtaining information, and since the Internet is also very popular, we require that the full text of the financial report of a listed company announced on the Internet be the object of financial analysis.

If possible, while conducting financial analysis, make full use of the advantages of the Internet, searching the Internet to find the relevant information of a particular company to make up for the inadequacy of relying only on financial reports.

2, the general requirements of financial analysis and the basic steps of analysis

The first step: general financial reporting analysis

(1) a single ability to analyze. Specifically analyze the listed company's solvency (including financial strength), operating capacity, profitability, development capacity, etc. (such as the possibility of productive analysis, operational analysis, etc.), to draw conclusions on the evaluation of the various capabilities;

(2) the basic structural analysis. Specifically, analyze the revenue and income structure, cost and expense structure, asset structure, and capital (liability) structure of the listed company, identify existing and potential problems, and point out measures to solve the problems;

(3) Conduct a comprehensive analysis by using DuPont analysis to analyze the impact of various factors on ROE (profitability of net assets, profitability of equity capital) and their extent (contribution), and to find out how to increase or improve ROE. To find out the main ways and means to increase or improve ROE;

(4) To evaluate the performance and economic efficiency of listed companies from different analytical purposes and perspectives, and to evaluate listed companies by applying multiple indicator system scoring methods to weight the scores of each indicator and calculate the total score of the enterprise.

At the same time, combined with the full text of the listed company's financial report and other information, the company analyzes its operating conditions and major events to arrive at an overall evaluation of the listed company.

Step 2: In-depth analysis of financial reports

Since most of the listed companies in China have problems such as untrue accounting information and low quality of information, from the point of view of improving analytical ability, we would like to incorporate the current norms of accounting, finance and other norms in the process of carrying out financial analysis.

Discovering the irrationality of listed companies in their financial reports, accordingly revealing the risks faced by the financial analysis, and further assessing the various risks of the enterprise and even all the risks.

(1) Discovering the items of scheduling profits of listed companies, and estimating their scale and the degree of their influence; specifically, analyzing whether the overall profits of listed companies are misrepresented or underreported? Discover the methods, approaches, projects and structures of profit manipulation, analyze the absolute amount of profit scheduling, and calculate the extent of its impact on all profits.

(2) Discovering the inaccuracies of assets and liabilities of listed companies and estimating the extent of their impact; in conjunction with the manipulation of profits, revealing the specific methods, ways and items by which assets and liabilities are falsely inflated or concealed, estimating their amounts, and calculating the extent of their impact on assets, liabilities and profits.

(3) Conducting analysis of connected transactions and judging the necessity and fairness of connected transactions; specifically analyzing each connected transaction item with respect to its necessity, reasonableness and openness of pricing, and timeliness and completeness of information disclosure.

Estimating the magnitude of the benefits to the parties to the connected transactions and the extent of their influence, and further estimating the losses to other parties and the extent of their influence.

(4) If possible, conduct relevant risk analysis.

Step 3: Where possible, compare the differences between the analysis of the parent company statements and the consolidated financial statements, reveal the limitations due to the use of consolidated data, and then discover the actual ability of the enterprise to control resources and its impact on the relevant items and the extent of their impact;

Step 4: From an investment perspective, conduct an in-depth analysis of the listed company's profitability and development ability, explore the potential for profitability

The fourth step is to conduct an in-depth analysis of the profitability and development capability of the listed company from an investment perspective, to explore the potential of profitability, to weed out false and inaccurate earnings, and to assess the value of the listed company.

Compare it with the market value and find out whether it is underestimated or overestimated, and finally, make the following conclusions and explain the basis:

(1) Whether to invest in the listed company;

(2) If it comes to the conclusion of investing, what scale of investment is to be made (controlling, more than 20%, participating in the stock, etc.), how long to invest, and what kind of investment is to be made.

(3) If possible, analyze and assess the core competitiveness of the listed company and use this as a basis for assessing the value of the company.

Source:Baidu Encyclopedia - Financial Analysis Methods