Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to warrant a monetary investment.
If conducted internally, financial analysis can help fund managers make future business decisions or review historical trends for past successes.
If conducted externally, financial analysis can help investors choose the best possible investment opportunities.
Fundamental analysis and technical analysis are the two main types of financial analysis. Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a security.
Technical analysis assumes a security's value is already determined by its price, and it focuses instead on trends in value over time.