How to Write Financial Analysis Paper
Financial analysis is a written document that details the company’s financial health. It is written by incorporating the history of the company, summarizing the financial reports and stock performance and other aspects of its financial performance, and incorporating them into a comprehensive form. In this post, we look at how to write a financial paper.
The main goal of a financial analysis paper is to help investors, lenders, and financial analysts to determine if a company can deliver a viable return on investment. As such, a perfect financial analysis of a company or business is vital as it is one of the main tools used in determining whether to invest in the company or not.
Although there is no specific technique for writing and structuring a financial analysis paper, however, it is good to ensure that all the key components of any financial analysis are taken care of. If you are looking for how to write a financial analysis paper, you are in the right place. Check out the following tips on financial analysis and industry analysis!
Executive Summary Section
The summary section is the most significant part of the financial analysis paper. It includes crucial research in the summary and an easy to read format. The main aim of this section is to summarize the information presented in the whole financial analysis report. The executive summary encompasses the insinuations of what the data in the analysis bring to the company and industry as a whole.
In a nutshell, this section includes a summary of the company’s mission, history, current performance, and anticipated outlook. Additionally, the executive summary features an overview of the firm’s industry, competition as well as market conditions.
The core business of financial analysis is to the collection of all financial declaration of the company’s financial statement. The reports include the income statement, balance sheet cash flow statement, and equity statement.
Whereas the balance sheet shows the firm’s allocation of assets, liabilities, and shareholder’s equity, the income statement indicates the company’s revenues, expenses, and profits or losses. The balance sheet shows the assets and liabilities of the company. The equity statement, on the other hand, shows the changes in the shareholder’s equity. The CF statement outlines the sources of revenue and how it spends it.
Evidently, a company does not exist in a vacuum. For that reason, a financial analysis paper should include an examination of the company’s industry. In the analysis, there must be comparisons between the firm’s financial health and that of its competitors.
Moreover, the financial analysis should show the firm’s market share and prominence in the industry. These are the components that help the investors to determine whether the business is competitive in its industry and whether it is a worthy investment.
The financial ratio section is to disclose company aspects like liquidity, the total debt amount, debt ratio, and the efficiency of the company. For instance, the current liquidity ratio of the company is the proportion of the current assets to its current liabilities.
Equally, other financial ratios like the debt ratio and the current liquidity ratio are the ratio of the company’s total debt to its total equity. The price to earnings ratio is the result of dividing the company’s existing market price per share by the after-tax profits per share. The return on equity ratio measures a company’s profits against its total equity.
The Basics of a Professional Financial Analysis Paper for Academic Purpose
The basics of the writing of a professional financial analysis paper are instrumental as it ensures that an investor gets all the information they need to make an informed decision of whether to invest in the company in an easy to read format. To get it right, the outline below can come in handy. It has the primary sections to think about when writing a financial analysis paper for a particular company.
To ace your score in financial analysis, you should begin with a description of the business to help investors and financial markets understand what your business is all about, its industry, its motivation, and the advantage it has over its competitors. Keep in mind that aspects play a vital role in helping to explain if a business can be a lucrative venture or not. For starters, you can start with the company’s annual report and financial statement with its exchange commission and securities.
The incentive for the financial health of the company is realized in this section. Regardless of whether it comes at the top or included in parts of the firm’s overview, it must point out the main investment positives and negatives.
Besides, the basic financial analysis that contains the reports such; sales and cash flow generation and CF will stipulate where the firm obtained its cash from. They also help to show the general financial health, balance sheet, profit growth trends, debt level, financial statement, and the firm’s liquidity. Bear in mind that there is no information that is too irrelevant in the investment thesis section. The section can also include key components in the cash conversion cycle, turnover ratios, and extensive breakdown of return on equity components.
However, the most important component in analyzing the previous growth trends of a company is to synthesize it into a forecast of its performance. As such, a financial analysis paper assists you to explore and deduce the past trends into the future. Besides, it will help investors decide on which aspects are more important in determining the success of the company.
The most crucial section of writing a financial analysis paper is probably the valuation. You have to arrive at an independent value for the stock and compare this to the current market price. For a successful valuation, you have to use the three key valuation techniques. The first technique is the discount cash flow statement analysis, which helps in approximating the company’s future cash flow and rebates them back to the future at an estimated discount rate.
The second technique is the relative value, which helps in comparing the fundamental metrics and valuation ratios like price to income ratio, price to sales ratio, and P/E to the company’s business growth ratio. The last technique is exploring the book value and try to approximate what the company may be worth in case it is liquidated or collapses.
Key Risks and other Considerations
The section can either be a decree or bear story in the investment thesis, however, it helps in detailing the key aspects that might disrupt a futuristic stance. The already mentioned sections can come in handy. But based on the unraveled aspects during the financial analysis and new parts may require inclusion in the paper. Such new parts may include corporate governance, political environment, or near-term news flow.
Keep in mind that any significant aspect that can influence the future value of a stock ought to be in the financial analysis paper. As such, you will have a worthy comprehensive financial analysis paper. Feel free to contact us to access our Writing Financial Analysis Paper services here.