Examples of Financial Analysis

Reviewed byDheeraj Vaidya, CFA, FRM

Financial Analysis Examples

An example of Financial analysis is analyzing a company’s performance and trend by calculating financial ratios like profitability ratios, including net profit ratio, which is calculated by net profit divided by sales. It indicates the company’s profitability by which we can assess the company’s profitability and trend of profit. There are more liquidity ratios, turnover ratios, and solvency ratios.

Examples of Financial Analysis

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Source: Examples of Financial Analysis (wallstreetmojo.com)

Financial Statement Analysis is considered one of the best ways to analyze the fundamental aspects. It helps us understand the company’s financial performance derived from its financial statements. It is an important metric to analyze its operating profitability, liquidity, leverage, etc. The following financial analysis example outlines the most common financial analysis used by professionals.

Key Takeaways

  • Financial analysis involves calculating ratios to estimate a company’s performance and trends. 
  • Financial ratio examples portray crucial tools that finance professionals use to evaluate the relative performance of two or more companies in the same industry.
  • One example is the net profit ratio, calculated by dividing net profit by sales. This ratio provides insight into the company’s profitability and profit trend. Other important ratios include liquidity, turnover, and solvency ratios.
  • By analyzing financial ratios, investors, analysts, and other stakeholders can gain valuable insights into a company’s strengths and weaknesses and make informed decisions about investing or doing business with the company.

Top 4 Financial Statement Analysis Examples

Below mentioned are the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more of XYZ Ltd & ABC Ltd.

Balance Sheet of XYZ Ltd. & ABC Ltd.

Financial analysis (Ratios)

P&L Statement of XYZ Ltd. & ABC Ltd.

Financial analysis (Ratios) 1

Below mentioned are the examples of financial ratio analysisRatio AnalysisRatio analysis is the quantitative interpretation of the company's financial performance. It provides valuable information about the organization's profitability, solvency, operational efficiency and liquidity positions as represented by the financial statements.read more based on financial statements provided above:

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Example #1 – Liquidity Ratios

Liquidity ratios measure the ability of a company to pay off its current obligations. The most common types are:

Current Ratio

The Current RatioCurrent RatioThe current ratio is a liquidity ratio that measures how efficiently a company can repay it' short-term loans within a year. Current ratio = current assets/current liabilities read more measures the number of current assets to current liabilities. Generally, the ratio of 1 is considered ideal for depicting that the company has sufficient current assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more to repay its current liabilities.

Current Ratio = Current Assets / Current Liabilities

Financial analysis Example 1

ABC’s Current Ratio is better than XYZ, which shows ABC is in a better position to repay its current obligations.

Quick Ratio

The Quick ratioQuick RatioThe quick ratio, also known as the acid test ratio, measures the ability of the company to repay the short-term debts with the help of the most liquid assets. It is calculated by adding total cash and equivalents, accounts receivable, and the marketable investments of the company, then dividing it by its total current liabilities.read more helps analyze the company’s instant paying ability of its current obligations.

Quick Ratio Formula = (Current Assets – Inventory)/Current Liabilities.
Financial analysis Example 1-1

ABC is better positioned than XYZ to cover its current obligations instantly.

Example #2 – Profitability Ratios

Profitability ratiosProfitability RatiosProfitability ratios help in evaluating the ability of a company to generate income against the expenses. These ratios represent the financial viability of the company in various terms.read more analyze the earning ability of the company. It also helps in understanding the company’s operating efficiency of the business. A few important profitability ratios are as follows:

Operating Profitability Ratio

Measures the Operating efficiency of the company;

Operating Profit Ratio Formula = Earnings Before Interest & Tax/Sales
Financial analysis Example 2

Both companies have a similar operating ratioOperating RatioOperating Ratio refers to a metric determining how efficient a company’s management is at keeping operating costs low while generating revenues or sales, by comparing the total operating expenses of a company to that of its net sales. Operating Ratio Formula = Operating Expenses / Net Sales* 100 read more.

Net Profit Ratio

Measures the overall profitability of the company;

Net Profit Ratio Formula = Net Profit/Sales.
Financial analysis Example 2-1

XYZ has better profitability compared to ABC.

Return on Equity (ROE)

Return on EquityReturn On EquityReturn on Equity (ROE) represents financial performance of a company. It is calculated as the net income divided by the shareholders equity. ROE signifies the efficiency in which the company is using assets to make profit.read more measures the return realized from shareholders’ equity of the company.

Return on Equity Formula = Net Profit/Shareholders’ Equity
Financial analysis Example 2-2

XYZ provides a better return to its equity holders as compared to ABC.

Return on Capital Employed (ROCE)

Return on Capital EmployedReturn On Capital EmployedReturn on Capital Employed (ROCE) is a metric that analyses how effectively a company uses its capital and, as a result, indicates long-term profitability. ROCE=EBIT/Capital Employed.read more measures the return realized from the total capital employed in the business.

ROCE Formula = Earnings before Interest & Tax/Capital Employed
Financial analysis Example 2-3

Both companies have a similar return ratio to be provided to all the owners of capital.

Example #3 – Turnover Ratios

Turnover ratios analyze how efficiently the company has utilized its assets.

Some important turnover ratiosTurnover RatiosTurnover Ratios are the efficiency ratios that measure how a business optimally utilizes its assets to generate sales from them. You can determine its formula as per the Turnover type, i.e., Inventory Turnover, Receivables Turnover, Capital Employed Turnover, Working Capital Turnover, Asset Turnover, & Accounts Payable Turnover. read more are as follows:

Inventory Turnover Ratio

Inventory Turnover RatioInventory Turnover RatioInventory Turnover Ratio measures how fast the company replaces a current batch of inventories and transforms them into sales. Higher ratio indicates that the company’s product is in high demand and sells quickly, resulting in lower inventory management costs and more earnings.read more measures evaluating the effective level of managing the business’s inventory.

Inventory Turnover Ratio Formula = Cost of Goods Sold/Average Inventory.
Example 3

A higher ratio means a company is selling goods quickly and managing its inventory level effectively.

Receivable Turnover Ratios

Receivable Turnover Ratios help measure a company’s effectiveness in collecting its receivables or debts.

Receivable Turnover Ratio Formula = Credit Sales/Average Receivables.
Example 3-1

A higher ratio means the company is collecting its debt more quickly and managing its account receivablesAccount ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more effectively.

Payable Turnover Ratios

The payable Turnover Ratio helps quantify the rate at which a company can pay off its suppliers.

Payable Turnover Ratio Formula = Total Purchases/Average Payables
Example 3-2

Higher the ratio means a company is paying its bills more quickly and managing its payables more effectively.

Example #4 – Solvency Ratios

Solvency ratiosSolvency RatiosSolvency Ratios are the ratios which are calculated to judge the financial position of the organization from a long-term solvency point of view. These ratios measure the firm’s ability to satisfy its long-term obligations and are closely tracked by investors to understand and appreciate the ability of the business to meet its long-term liabilities and help them in decision making for long-term investment of their funds in the business.read more measure the extent of the number of assets owned by the company to cover its future obligations. Some important solvency ratios are as follows:

Debt Equity Ratio

The Debt to Equity RatioDebt To Equity RatioThe debt to equity ratio is a representation of the company's capital structure that determines the proportion of external liabilities to the shareholders' equity. It helps the investors determine the organization's leverage position and risk level. read more measures the amount of equity available with the company to pay off its debt obligations. A higher ratio represents the company’s unwillingness to pay off its obligations. Therefore it is better to maintain the right debt-equity ratio to manage the company’s solvency.

Debt Equity Ratio Formula = Total Debt/Total Equity
Example 4

A higher ratio means higher leverage. XYZ is in a better solvency position as compared to ABC.

Financial Leverage

Financial leverageFinancial LeverageFinancial Leverage Ratio measures the impact of debt on the Company’s overall profitability. Moreover, high & low ratio implies high & low fixed business investment cost, respectively. read more measures the number of assets available to equity holders of the company. The higher the ratio, the higher the financial riskFinancial RiskFinancial risk refers to the risk of losing funds and assets with the possibility of not being able to pay off the debt taken from creditors, banks and financial institutions. A firm may face this due to incompetent business decisions and practices, eventually leading to bankruptcy.read more in terms of debt position to finance the company’s assets.

Financial Leverage Formula = Total Assets/Equity
Example 4-1

Higher the ratio of ABC implies that the company is highly leveraged and could face difficulty paying off its debt compared to XYZ.


It is important to understand that financial ratiosFinancial RatiosFinancial ratios are indications of a company's financial performance. There are several forms of financial ratios that indicate the company's results, financial risks, and operational efficiency, such as the liquidity ratio, asset turnover ratio, operating profitability ratios, business risk ratios, financial risk ratio, stability ratios, and so on.read more are one of the most important metrics used by finance professionals in analyzing the financial performance of companies. Also, it helps in understanding the relative performance of two or more companies in the same industry.

Frequently Asked Questions (FAQs)

1. What is trend analysis in financial analysis? 

Trend analysis is a type of financial analysis that involves comparing a company’s financial data over multiple periods to identify trends and patterns. For example, this type of analysis helps to identify whether the company’s financial performance is improving or declining over time.

2. What is cash flow analysis in financial analysis? 

Cash flow analysis is a type of financial analysis that involves examining a company’s cash inflows and outflows to assess its ability to generate cash and meet its financial obligations. This analysis helps identify whether the company generates sufficient cash to fund its operations and investments.

3. What is sensitivity analysis in financial analysis? 

Sensitivity analysis is a type of financial analysis that involves examining the impact of changes in key assumptions on a company’s financial performance. This type of analysis helps to identify the most important drivers of the company’s financial performance and the potential risks and opportunities associated with these drivers.

Recommended Articles

This article has been a guide to Examples of Financial Analysis. Here we discuss the top 4 Financial Analysis Examples, including profitability, liquidity, turnover, and solvency ratios. You can learn more about financing from the following articles –

Reader Interactions


  1. Anyait Diana says

    Perfect work
    I appreciate

    • Dheeraj Vaidya says

      Thanks for your kind words!

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