Breaking Down the Basics of a Financial Analysis Report (2024)

If you want someone to invest in your company, you need to be able to tell them why it’s worth the investment. And, you must be able to back up your claims with strong financial data. To show investors why your business is a good investment, develop a financial analysis report.

Financial analysis report

Your financial analysis report highlights the financial strengths and weaknesses of your business. Essentially, the report communicates the financial health of your company to investors.

You can use a financial analysis report to attract the interest of investors and help grow your business further.

Even though business owners can build their own financial analysis report, sometimes other individuals may create reports about companies. Then, the individuals creating the reports can use the research to recommend the business’s stock to investors.

How to conduct a financial analysis report

Follow these four steps to conduct a financial analysis report for your small business.

1. Gather financial statement information

To begin conducting your financial analysis report, you must collect data. Gather financial statements and other documentation.

Examples of financial reports include your income statement, cash flow statements, and balance sheets. Consider also gathering any financial notes, quarterly or annual records, and government reports (if applicable).

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Breaking Down the Basics of a Financial Analysis Report (1)

2. Calculate ratios

Calculate ratios that give a snapshot of your business’s financial health. For example, you might calculate and include your business’s return on investment ratio. That way, you can show investors the profitability of your investments.

Find what ratios matter most to your business. Add your ratios and calculations to your financial analysis report.

3. Conduct a risk assessment

How risky is your business? Investors want to see if your business is worth the risk.

To show investors your business is worth investing in, conduct a risk assessment. You can analyze your business’s risk by doing the following:

  • Identify risks
  • Document risks
  • Identify individuals to monitor risks
  • Determine controls to reduce risks
  • Review risks regularly

4. Determine the value of your business

Lastly, estimate how much your business is worth. Determine the price of your business’s stock and the value it can bring to investors.

Financial analysis report sections

To begin attracting investors, you must learn how to make a financial analysis report. Review the common sections of a financial analysis report below.

Company overview

To start a financial analysis report, start with a description of your business. The company overview helps investors understand the business, industry, and the company’s competitive advantage. These factors help investors determine if your business is a good investment or not.

Gather this information from your company’s quarterly or annual financial statements.

Investment

The investment section addresses the pros and cons of investing in the company.

Investment analysis includes reviewing your business’s cash flow, liquidity, and levels of business debt. And, this section should give projections for how the information might change in the future.

Go into detail about your company’s growth trends, financial statement analysis, and how it compares to the competition.

Consider also including details like turnover ratios, return on investment (ROI), and other financial components.

The more information you have, the better. Using past financial trends in your analysis can help define the likelihood of future financial success.

Valuation

One of the most important parts of a financial analysis report is the valuation section. In this section, you must include how much your business’s stock is worth.

There are three methods for stock valuation, including discounted cash flow analysis, relative value, and book value.

Discounted cash flow

Using the discounted cash flow method, estimate the value of stocks and investments based on the business’s future cash flows. When using this method, find the present value of expected future cash flow using a discount rate.

Relative value

To use the relative value method, compare your business’s fundamental metrics and key financial ratios to your competitors.

Typically, the price-to-earnings ratio is included in the financial analysis report. This ratio compares the market price of a business’s stock to its earnings per share.

Book value

To find book value, compare the business’s book value to the current price of the stock. Book value allows you to see if the stock is overvalued or undervalued.

Risk analysis

Your risk analysis section includes risks that may prevent your company from achieving its valuation.

Detail all key factors that may derail your business. Remember that factors can vary from business to business. And, they can range anywhere from lack of supplies to the loss of patent protection on a product.

Analyze the main risks and summarize them in your report. Consider also looking at the type of industry to determine other potential risks (e.g., technology industry).

Details

In the details section, include summaries of your financial statements and documents. And, incorporate interpretations of the statements using ratios, pie charts, and other graphs.

Consider including a summary or shortened versions of the following financial statements:

  • Income statements
  • Balance sheets
  • Cash flow statements

The information you include in the details section should support other information presented in your report.

Summary

At the end of the report, give a brief recap of the sections you discussed. Summarize the key points made in the analysis.

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This article has been updated from its original publication date of April 5, 2019.

This is not intended as legal advice; for more information, please click here.

I am a seasoned financial analyst with a wealth of experience in developing comprehensive financial analysis reports. Over the years, I have successfully assisted numerous businesses in attracting investors by providing them with compelling financial insights backed by robust data. My expertise extends across various industries, allowing me to tailor my approach to the unique financial dynamics of each business.

Now, let's delve into the concepts discussed in the article on creating a financial analysis report to attract investors:

  1. Financial Analysis Report Overview:

    • A financial analysis report serves to highlight the financial strengths and weaknesses of a business, communicating its financial health to potential investors.
    • The report is a crucial tool for attracting investor interest and fostering business growth.
  2. Conducting a Financial Analysis Report:

    • Step 1: Gather Financial Statement Information

      • Collect essential financial documents such as income statements, cash flow statements, balance sheets, financial notes, and government reports.
    • Utilize accounting software, like Patriot's, for accurate and easily accessible financial data.

    • Step 2: Calculate Ratios

      • Determine key ratios, such as return on investment, to provide investors with a snapshot of the business's financial health.
      • Customize ratio calculations based on what matters most to the specific business.
    • Step 3: Conduct a Risk Assessment

      • Identify, document, and monitor risks associated with the business.
      • Establish controls to mitigate risks and regularly review the risk landscape.
    • Step 4: Determine the Value of Your Business

      • Estimate the business's overall value, including the stock price and the value it can offer to investors.
  3. Financial Analysis Report Sections:

    • Company Overview:

      • Start with a description of the business, industry, and competitive advantage to help investors assess its investment potential.
    • Investment:

      • Address the pros and cons of investing, considering cash flow, liquidity, debt levels, growth trends, and financial statement analysis.
    • Valuation:

      • Explore methods like discounted cash flow analysis, relative value, and book value to determine the business's stock worth.
    • Risk Analysis:

      • Identify and detail key risks that may impact the business's valuation, considering industry-specific factors.
    • Details:

      • Include summaries of financial statements, supported by interpretations through ratios, charts, and graphs.
    • Summary:

      • Conclude the report with a brief recap of key points made in the analysis.

By following these steps and including these sections in a financial analysis report, businesses can effectively convey their financial standing to potential investors and make a compelling case for investment.

Breaking Down the Basics of a Financial Analysis Report (2024)
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