Financial analysis is the process of evaluating a company’s financial performance and financial health by analyzing key financial statements such as income statement, balance sheet, and cash flow statement. It involves a systematic review of the company’s financial data and financial ratios, comparing them to industry benchmarks and past performance to determine the company’s financial strengths and weaknesses.

Financial analysis can be used to assess the financial health of a company or investment opportunity by providing insights into its profitability, liquidity, solvency, and efficiency. For example, financial analysis can help investors identify companies with strong cash flow and earnings growth potential, as well as identify companies with a high debt-to-equity ratio or weak profitability.

By evaluating a company’s financial statements, investors and analysts can gain a better understanding of its financial position and make informed decisions about investing in the company. They can also use financial analysis to forecast future financial performance and identify potential risks that may impact the company’s financial health.