Financial analysis (also known as financial statement analysis, accounting analysis, or analysis of finance) refers to an assessment of the viability, stability, and profitability of a business, sub-business, project or investment.

It is performed by professionals who prepare reports using ratios and other techniques, that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Financial analysis may determine if a business will:

Financial analysts often assess the following elements of a firm:

Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time.

Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.):

Comparing financial ratios is merely one way of conducting financial analysis. Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount. For example, a group of items can be expressed as a percentage of net income. When proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis.

Vertical or common-size analysis reduces all items on a statement to a "common size" as a percentage of some base value which assists in comparability with other companies of different sizes. As a result, all Income Statement items are divided by Sales, and all Balance Sheet items are divided by Total Assets.

Another method is comparative analysis. This provides a better way to determine trends. Comparative analysis presents the same information for two or more time periods and is presented side-by-side to allow for easy analysis.