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Financial analysis financial analysis

Financial analysis is a very useful tool to understand how a company is doing. It’s a bit like one of these Russian dolls, a matryoshka. You have a good look at it from all sides, and then you find out there’s a level below it. You take a good look at that level, notice all the details, and find out there’s a level below it. And on and on and on. Let’s apply that idea to financial analysis! Financial analysis matryoshka-style!

0:00 Introduction to financial analysis
0:35 Financial analysis: revenue
2:05 Organic revenue growth
3:30 Financial analysis: profitability
5:35 Financial analysis: cash flow
7:38 Analyzing liquidity and solvency
8:35 Balance sheet analysis

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Financial analysis starts with revenue: the goods or services that a company delivered to its customers.

As the next step in our financial analysis, we move from revenue analysis to profitability analysis.

From profitability analysis we move to cash flow analysis. Does the company’s profitability translate to cash flow (money moving into its bank accounts)?

If revenue growth, margin improvement, and free cash flow generation are indicators of financial health, then their opposites must be indicators of an unhealthy financial situation, right? Revenue decline, margin deterioration, and free cash flow decline as indicators of an unhealthy financial situation? Well, that’s only part of the story! The most important question in financial analysis might actually be: can the business survive in times of turbulence? How vulnerable or fragile is the company, particularly to unexpected events? That’s where financial analysis of solvency and liquidity can help, but only for those elements of risk that are in plain view on the financial statements, as hidden risk is by definition hidden.

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Philip de Vroe (The Finance Storyteller) aims to make accounting, #financialanalysis and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

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14 thoughts on “Financial analysis financial analysis”

  1. Could you do an FA analysis for Standard Chartered PLC to shed some light on this stock going forward .. bought it at GBP1212, it is now trading about GBP 462.10 .. thanks

  2. this was very important video !
    after i saw the video i have question that very related to this video.
    if the net income comes from revenue how can it be that net income can grows much faster than revenue over a period of few years ?

    thanks in advance philip

  3. I have a question: For a conglomerate that usually acquires businesses, shouldnt we consider the cash outflows that result in these acquisitions in the CFFO instead of CFFI?

  4. I think your calculation is wrong at 1:46, the correct one should be (CY/PY) -1 which I usually do.
    Anyway I like your videos, is simple and educated. Since I am self-educated mainly study The Intelligent Investor and Security Analysis by Ben Graham, I like to watch your videos if I don't have the clear mind, especially accounting principles.

  5. Great video! Just one technicality question/comment: the 210 operation margin/EBIT line shall be a actually operating income/EBIT? Since the operating margin is EBIT/Revenue 21%.

  6. Excellent video! I've just started investing in stocks and these videos are very helpful. I have been using 5/10y historical CAGR to estimate potential future CAGR, then discounting this future price back to current day and comparing to the actual stock price. I then create a shortlist of the stocks that 'appear' good value, then I review everything you mentioned in this video to see if it's a stable, profitable future business and to see if the CAGR predictions for the stock need to be adjusted. As a tip if you add in some high-interest stock examples to your videos, it may increase the viewer count. For example Nio, Nikola & Tesla stocks are all very hyped at the moment and they all have very different fundamentals!

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