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5. Growth Rates
Analyzing historical growth rates and projecting future ones are a big part of any financial analyst’s job.
Common examples of analyzing growth include:
1. Year-over-year (YoY)
2. Regression analysis
3. Bottom-up analysis (starting with individual drivers of revenue in the business)
4. Top-down analysis (starting with market size and market share)
5. Other forecasting methods
6. Profitability Analysis
Profitability is a type of income statement analysis where an analyst assesses how attractive the
economics of a business are. Common examples of profitability measures include:
1. Gross margin
2. EBITDA margin
3. EBIT margin
4. Net profit margin
7. Liquidity Analysis
This is a type of financial analysis that focuses on the balance sheet, particularly, a company’s ability to
meet short-term obligations (those due in less than a year). Common examples of liquidity analysis
include:
1. Current ratio
2. Acid test
3. Cash ratio
4. Net working capital
8. Efficiency Analysis
Efficiency ratios are an essential part of any robust financial analysis. These ratios look at how well a
company manages its assets and uses them to generate revenue and cash flow.
Common efficiency ratios include:
1. Asset turnover ratio
2. Fixed asset turnover ratio
3. Cash coversion ratio
4. Inventory turnover ratio
9. Cash Flow
As they say in finance, cash is king, and, thus, a big emphasis is placed on a company’s ability to generate
cash flow. Analysts across a wide range of finance careers spend a great deal of time looking at
companies’ cash flow profiles. The Statement of Cash Flows is a great place to get started, including
looking at each of the three main sections: operating activities, investing activities, and financing
activities.
Common examples of cash flow analysis include:
1. Operating Cash Flow (OCF)
2. Free Cash Flow (FCF)
3. Free Cash Flow to the Firm (FCFF)
4. Free Cash Flow to Equity (FCFE)