What does financial analysis help evaluate?

Financial analysis is a critical process that primarily focuses on assessing a company's financial statements and performance, making it essential for making informed business decisions. By examining financial statements such as the balance sheet, income statement, and cash flow statement, financial analysis provides insights into a company’s profitability, liquidity, efficiency, and solvency.

Evaluating financial performance through this analysis helps stakeholders—such as investors, creditors, and management—understand how well the company is performing financially and identify trends over time. This can involve ratio analysis, trend analysis, and benchmarking against industry standards, allowing for a comprehensive understanding of a company's financial health and operational effectiveness.

While other factors like marketing strategies, employee productivity, and supply chain efficiency are certainly important for overall business success, they fall outside the specific focus of financial analysis, which is grounded in the quantitative assessment of financial data to support strategic decision-making. This makes the evaluation of financial statements and performance the most relevant aspect of financial analysis.