Financial Analysis: Leverage Analysis, Growth Rates, Profitability Analysis and Liquidity Analysis

FINANCIAL ANALYSIS:

Leverage Analysis, Growth Rates, Profitability Analysis and Liquidity Analysis

Ro b To l l ey

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Leverage Analysis, Growth Rates, Profitability Analysis and Liquidity Analysis Leverage analysis, assessing growth rates, profitability analysis and liquidity analysis are four common types of financial analysis used by businesses.

Leverage Analysis Leverage ratios are commonly used by analysts to evaluate a business’s performance. Specific metrics are compared to the business’s total equity to obtain a fuller picture of the underlying capital structure. Ratios frequently used in a leverage analysis include debt/equity, debt/EBITDA and EBIT/interest. Dupont analysis may also be deployed, which assesses a combination of ratios, including liquidity and leverage.

Growth Rates Analysis Analysing past and current growth rates and projecting future rates is a key part of a financial analyst’s role. Assessing growth rates can be undertaken in several ways, including on a year-over-year basis, a regression analysis, a bottom-up analysis or a top-down analysis.

Financial Analysis

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A profitability analysis is a type of income statement analysis in which an analyst looks at the profitability (or otherwise) of a business.

Profitability Analysis

Liquidity Analysis

A profitability analysis is a type of income statement analysis in which an analyst looks at the profitability (or otherwise) of a business. Common elements assessed as part of such an analysis include the gross margin, EBITDA margin, EBIT margin and net profit margin.

This type of financial analysis focuses on the business’s balance sheet and, particularly, the business’s ability to meet its short-term obligations.

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