Finance
Beyond calculations, finance must be applied to real-world situations.
(Please be advised that this site only provides a sneak peek into finance)
Financial Statements
Financial statements show a company’s financial health. Understanding them is crucial for making informed decisions.
Balance Sheet: Shows what a company owns (assets), what it owes (liabilities), and its equity. Example: Checking if a company has enough liquidity to pay off its debts.
Income Statement: Reveals whether a company is making or losing money. Example: If expenses exceed revenue, the company may need to cut costs or increase sales.
Cash Flow Statement: Helps determine if a company has enough cash to operate. Example: A profitable business can still struggle if customers take too long to pay.
Financial Analysis:
Reading financial statements isn’t enough; we need to analyze key indicators that reflect business performance.
Liquidity Ratios: Can the company meet its short-term obligations?
Profitability Ratios: How efficiently is the company generating profits?
Debt Ratios: How dependent is the company on debt?
Efficiency Ratios: How well is the company utilizing its resources?
Important
Net Present Value (NPV)
Internal Rate of Return (IRR)
Sensitivity Analysis: Evaluates what happens if key variables change. Example: If sales drop by 10%, will the business still be profitable?
Coefficient of Variation: Compares risk and return. Example: If two investments offer the same return, but one has lower risk, it’s the smarter choice.
Financial Forecasting: Uses statistical models to project revenue and expenses. Example: A supermarket can predict which products will sell the most during the holiday season.
Regression and Trend Analysis:
Uses historical data to forecast future performance. Example: If a company has grown 5% annually over the past five years, it’s likely to follow a similar trend.
Buying vs. Leasing Assets: Should a company buy machinery or lease it? Financial projections help make the call.
Cost Optimization: Should a company cut staff or invest in technology? Financial and strategic impacts must be considered.