What are Disadvantages and Advantages of Financial Statement Analysis?

January 18, 2019
Financial Analysis Course

 

Financial statements are true statements of the company’s health. It is mandatory that financial documents and statements be prepared and published on a yearly, quarterly, biannual, and monthly basis.

Financial statements include true statements of the company’s operational budget, assets, expenses, liabilities, earnings, and the net worth of liabilities and assets. Financial analysts, accountants, and planners use these statements to enable decision making with regard to expansions, future planning, fundraising, and market launches among others. However, there are bound to be some disadvantages too. Let us explore them.

The advantages of financial analysis 

Pattern Detection and forecasting:

Financial statements have the ability to reveal earnings per year, sales and profits accrued. Though sales figures may vary, the financial planners will be in a position to find a correlative pattern over a few years of data of sales-figures. Take the example of a company which may reveal a trend of sales increases whenever new products are marketed and released. Sales could drop after let’s say a year of the product launch. This trend analysis is a huge company benefit as it forecasts a market life of about a year is useful, as it shows sales patterns for product launches, a sales drop after a year, and a need for new products in a year’s time.

Budget Outline in real-time:

Decision making for planning the future, budget estimations, corrective actions required for efficient budgeting, and many such decisions rely heavily on financial statements. The statements reveal how much you can spend on marketing or product launches, strategizing for marketing-campaigns, future expansions, requirements of funding etc. Information is power in decision making and planning. This in term improves productivity, budget overruns and such to keep the company healthy and increase profits year after year.

Disadvantages:

Based on patterns of the market:

A big disadvantage of the financial statements analysis and use for making strategic decisions based on figures and data pertaining to current market conditions which may fluctuate. Past performance is a good indicator and motivator. It cannot, however, guarantee the fluctuations and future demands. A cautious approach is called for in interpretation of financial ratios and statements to prevent excessive risk-taking based purely on forecasts.

Analysis of At-One-Time basis:

As the name suggests the forecast and analysis is applicable at that one time only. It does not reveal or compare the past performance or future forecast at one glance. One will need to exercise caution by generating and reporting on a continuous basis rather than a one-time basis. Such extrapolation of data and financial analysis undertaken frequently is crucial to the company’s health and decision-making abilities.

Why do financial analysis courses?

Do a course on financial analysis because then financial statements do not remain a mystery.

Course skills and requirements

A graduation degree or even a Master’s in Finance goes a long way. Add certifications that are relevant. Those from a non-financial background can also take these courses as most offer boot camps to bring you to speed.

Course advantages: The courses offer a good grasp of basics, concepts, theoretical knowledge, practical skills and certifications that could help enhance your resume and career. They also offer boot camps, short term workshops, and knowledge valuable to enter the industry. Another advantage in such a course is of mentoring by certified and experienced industry aces that helps garner the latest best practices, techniques, skills, and practice on the latest trending technologies in the financial industry.

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