by Dr. Alan November 23, 2020
Financial drafting a financial analysis report is easier said than done. For starters, you need a solid understanding of the company’s operations and commercial accounts. There are multiple accounts and ledger records to keep track of the expenses and earnings of a company.
The year-end financial report is useful for getting insights into the company’s performance and growth. This report also gives potential investors an idea about the business position and potential of the brand.
Students of finance must learn about the different finance theories and their proper application. Don’t worry, I have a step-by-step guide that discusses all the elements of a financial analysis report
All about financial recording
Financial accounting is a system of bookkeeping wherein the accountant keeps a record of the cash inflow and outflow within the organisation. There are different steps, accounts and entries made and transferred over the year
The accounting process starts with journal entries and ends at the balance sheet. In-between you have profit and loss accounts, income statements, bank reconciliation statements and more. You might get accounting assignments and projects wherein you have to analyse and calculate the company’s performance over some time
A financial analysis report helps you curate all this information and ensure that you get the right insights from them.
Preliminary and final accounts
The first part of financial accounting is called the initial statements. This is where the everyday transactions of the company are recorded. This can pertain to both the internal and external operations of the organisation.
Journal entries, ledger accounts and income & expenditure accounts are some of the critical financial reports. The insights gathered from these preliminary accounts are then transferred to the final accounts and matched with the bank statements
In a real-life situation, every journal entry must be backed by a receipt. Students might get all the details in their assignment. The final accounts comprise the balance sheet and other reports wherein you figure out the balance sheet ratios for a more holistic analysis.
Towards the end of your coursework though, you get an opportunity to intern with some top-notch corporate house. This helps you understand the intricacies of how to practically apply the financial theories you learn about in the university.
When it comes to proper accounting, you need an in-depth understanding of both theoretical and practical aspects of bookkeeping.
Steps to prepare the financial analysis
Now that you have a basic idea about financial accounting and reporting let us get straight down to business. Do you want a simple and effective method to prepare the financial analysis report? Well, I have just the thing for you!
Here is a stepwise breakdown of all the elements of a financial report. I will also discuss some other aspects of financial accounting, followed by a small section on quick links that you can refer to.
Step 1: The Cover Page
The cover page is the first thing that the professor sees of your financial analysis report. And you know what they say about first impressions, right? You better make them count! Ensure that you have the name of the company, the financial year and the name of your report on the cover page.
The cover page is also where you add your credentials. Keep the cover page clean, organised, and concise. Next, you can add a short abstract wherein you state the research statement and purpose of the financial analysis.
I usually recommend students to write the abstract after completing the paper. For, although the synopsis comes first, it is but a summary of your report.
Step 2: State your objectives
The next section is where you list down the research methodology of the paper. This is where the students can discuss the various books, articles and sources referred to in your financial analysis report.
This section usually comes before the introduction and gives you the space to state the objectives and findings of the paper. Some students prefer to skip the research methodology section and jump directly to the introduction.
Step 3: The Introduction
The introduction is technically the first page of your financial report. Here, you can set the background or context of the financial report analysis. Most colleges give students a case study or a company that they have to analyse.
In the introduction, you can talk about the various financial accounts and theories applied to draft the report. This adds credibility to your research. Ensure that you cite all your resources and explain them towards the end of your paper. Expand upon the citations in the reference list (but more on that later).
Step 4: Company overview
The company overview comes after the introduction. I always advise students to keep the intro short but expand upon the points in the company overview section. For, this is where you can discuss the size, scale, and sector of the company.
The company overview also outlines the present and potential scope of the company. The primary purpose of this section is to inform the reader whether the company is a good investment or not. You can get the relevant data from trade journals, business studies, past financial reports.
Some students also include a para or two about the competitors in the market. I recommend students to apply Porter’s Five Forces model here for competition analysis.
Step 5: Investment thesis
The investment thesis delves into the more technical side of things. For, here, you can figure out the capital investment, assets, and liabilities of the company. Students try to mention the current and future growth potential of the enterprise.
As a student of finance, you must be familiar with the bullish and bearish trends of the market. Use this space to discuss the investment practices and share value of the company. The investment thesis also covers the significant efficiency ratios, turnover ROI, cash conversion cycle and other aspects of the company.
Step 6: Valuation
Valuation is the most essential part of any financial analysis report. This is where you discuss the stocks and assets of the company. For university-level projects, students often get all the information about the profits/loss and turnover in the question.
However, in real-life, accounting professionals use the final accounts and insights from the balance sheet to draft the analysis report. This is the section where you list the assets and liabilities of the company.
There are three main techniques to evaluate a company’s stocks and present value. You can discuss these evaluation techniques before diving headway into it with graphs, charts, and the numbers.
Step 7: Key risks and gains
This is the section where you can discuss the present and future risks of the organisation. Basic SWOT analysis might be an excellent way to start the risk/gains evaluation. Although note that SWOT analysis works on a very microscopic level. You might also have to use other market evaluation methods as well
I often suggest students apply PESTLE analysis for a more comprehensive picture. With PESTLE analysis, students get to understand the marketing environment and other macro factors that can affect the financial performance of a company
The principal risks evaluations, gains and losses also determine the market value of the enterprise, giving investors an idea about its investment potential.
Step 8: Final insights
After giving a detailed analysis of the company and its financial position, you can move on to the last part of the report. In this section, you present your final insights about the company and whether it is at a profit or loss
Make sure to back all your findings up with substantial data, accounts, and financial theories. Here you can also talk about the future prospects of the company. Suggest a few expansion strategies and market trends and its impact on the organisation
Every journal entry must be backed by a receipt.
Step 9: Reference list
The last section of the report is the bibliography and reference list. Most universities give students specific instructions about citations, and it’s better you stick to that. In case there are no special requirements, I suggest students use Harvard or APA in-text referencing style. This is because these citation styles are better suited to stat-based reports.
Quick links and references
Here is a list of some credible references and additional reading material that you can browse through. Don’t worry, these sources are taken from Govt. or university websites and hence great for citing in your paper as well!
Citation generator: Citethisforme
The Bottom Line
Preparing a financial analysis report is not an easy task. For when it comes to proper accounting, you need an in-depth understanding of both theoretical and practical aspects of bookkeeping. Students with these assignments learn how to apply the accounting practices they learn in college.
I hope that this guide on how to prepare a financial analysis report is useful to the readers. You should consult your peers and professors about the formatting and other aspects of the paper as well. Good luck with your finance assignment, I hope you ace it!