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The ISBF Blog

Financial Analysis of an Organisation

Posted on April 03, 2019 by Neha Arora, Assistant Professor Finance  | Academics | Blog

Last week, I took my mother to the hospital for taking an appointment for her back operation. She made her mind to get her right hip operated from a known surgeon in Sant Parmanand Hospital, New Delhi. Before making the decision to get her body operated, she has visited a lot of hospitals, clinics and doctors, but even after her untiring attempts of expecting a recovery, doctors recommended her to undergo an operation. She had already in her mind, that she will get it done through this known name in the orthopaedic surgery department. Basically when one thinks of one's surgery, one becomes risk-averse because smooth functioning of one's body is very crucial for one's life

Similarly, when it comes to investing the resource, which is the result of the hard work of people, i.e. Money, they become risk averse. There are multitudinous organisations who have the opportunities and seek capital to expand their business operations, but the investors don't treat all of them, equally worthy of their investments.
How they fix on an organisation among the prolific available names, is an interesting question.

Among the numerous integral constituents for an analysis, the prime factor is to analyse the revenue drivers of the organization and the likely acceptability by the general public, for those revenue drivers in the future.

Some of the important questions to answer may be: Whether the demand for the revenue line has probable stability and credible growth, in terms of providing satisfaction to its consumers or not! What is the level of competition in the industry? What is the expertise and attracting power of this enterprise, compared to its peers? Are the political conditions stable in the geographical location of the enterprise? For how longer, can it retain the expertise seeing the plausible future trends? What are the strategies adopted by the organisation to beat any foreseeable future threat? Are these strategies apparently suitable in order to take the organization to the leading position in the industry or not?

Then comes analysation of the past performance trend of the enterprise, its growth graph, accomplishments of the targets and trend in capturing the market share. Financial analysis is of significance importance, before starting which, one must read the auditors opinion about the true and fair picture of the organisation's state of affairs. Each of the financial statement must be read and linked to every other financial statement and the flows of cash must be given due importance in checking whether the profitability is backed by realisation or not? Holistic coverage to the liquidity aspect, leverage position, working capital position, activity position must be given in addition to separately analysing the operational and overall performance of the enterprise, in order to decide whether an organisation is worthy of your hard earned money or not?

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