Saturday, September 8, 2007

Systematic Analysis: The Purpose Of The Financial Analysis

A few days ago, I discussed the six steps to making a systematic financial analysis of an investment. Over the next week or two, I intend to flesh out each of those steps for you. Hopefully, this will make analysis a little easier to understand.

In today's blog, we look at the first step:
Define The Purpose Of The Analysis.

While it may appear to be an easy step, it is perhaps the most important one. Prior to beginning, you should identify what you need to analyze. Decide what your intent and what your goals are for the Analysis.

Important Note: Consider whether you even need to do an analysis at all. Many hours of labor can be saved by eliminating the evaluation of investments you already know that you won't put capital into.

Some answers an analyst may seek could include "Should our firm invest in new equipment" "Should a loan be granted to a retailer" "Will the new growth in sales cause this stock to accumulate new value" "Do we have enough money budgeted to complete this project on time". The list of possible analysis is endless.

Once the big picture goal is figured out, get all of your resources together. I imagine that larger goals may require fact finding missions to get the information from the source. Many other analysis can be performed simply by using the information available on the internet.

With your purpose and information in hand, you are ready to move to step 2: Create An Overview Of The Company or Project.

Come back over the course of the next week as I continue to blog about how to create a systematic approach to analysis.

---------Sincerely, Trevor Stasik

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