Financial Analysis - Guidelines

Financial analysis permits developing and sharpening analytical skills across various business subjects by dealing selectively and intensively with problems in each field. Classroom discussions and serious communications between team members are essential to bring together the participantsí expertise, experience, observations and rules of thumb around the focal point your firms provide. Each member will bring to identifying the central problems, analyzing them, and proposing solutions. The lessons of experience are tested as the member presents and defends his/her analysis against that of other members having different experiences and attitudes gained by working in different jobs.

Perhaps the most important benefit of using real world firms is that they help participants learn the degree of complexity of financial operations a firm must go through, and learn how to ask the right questions. However, since business is not an exact science, there is no single right answer. Rather several viable answers will be developed and supported by defensible analyses.

The following steps are recommended to take before discussing the analysis with team members or in class.

  1. Read the annual reports quickly to get the broad picture of the firm and to see what types of information are given.
  2. Read the financial statements and between the lines very carefully, underlining key figures as you go. Then ask yourself, "What are the basic problems to be resolved?" Try to put yourself in the position of the CFO, or consultant. Develop a sense of involvement in the problems.
  3. Financial ratios are useful, but they should not be considered as the panacea.
  4. Note the key problems on scratch paper. Then go through the articles you collected from the WSJ on the firm, sorting out the relevant considerations for each problem area.
  5. Develop a set of recommendations supported by your analysis of the data.

Writing the research report:

  1. Design your report for busy, perceptive, demanding and action-oriented management.
  2. Write clearly and succinctly. Eliminate verbiage, duplication and baroque sentences.
  3. Make your report unfold in a logical cohesive way.

Format (maximum 5 pages):

  1. Title page - company name, table of contents, date, course number, names of contributing members.
  2. Executive summary(the 1st heading) should include:
  3. a. Statement of the problems or decision task.
    b. Summary of recommendations, omitting reasons.

  4. Analysis supporting and leading up to the summary recommendations.
  5. A brief recap in Conclusion (the last heading) .
  6. Appendices.