Financial Statement Analysis has been developed for accountants, corporate lawyers, entrepreneurs, banks, CFOs (Chief Financial Officers), financial analysts, managers, economists, shareholders needing to analyze business performances of companies who adopt IFRS (International Financial Reporting Standards) and GAAP accounting standards. It is a vital application for:

Economic and financial analysis of both listed and unlisted companies;
Effective financial communication to stakeholders, through a professional and fine report; 
Creditworthiness assessment and company rating;
Financial health assessment;
Investment and financing decisions by managers or external stakeholders.

Users simply have to enter data from two financial reports. The application can anyway analyze up to five years of financial data. The system highlights technical or logical mistakes in the entered data and makes a series of recommendations to improve performances. It develops a thorough analysis and generates a final report on the company’s health.

INPUT DATA

All you need is to enter financial data of the company you intend to assess, classified according to IFRS or US GAAP rules. It is specifically required:

Statement of Financial Position (Balance Sheet);
Statement of Comprehensive Income (Income Statement)
Assets and Liabilities in the Balance Sheet have to be arranged according to a current/non-current classification.

Income Statement is supposed to report “Cost of Goods Sold” separately from any other cost (such as administration or distribution costs).

Some optional data are also required:

Operating cash-flow.
Number of employees.
Amortization and depreciation expense, essential to calculate EBITDA.
All data are required for at least 2 fiscal years (up to a maximum of 5).

RECLASSIFIED FINANCIALS

Reclassification of Balance Sheet:

Improves the capability to provide information to investors;
lets you immediately figure out the whole picture.
EBIT and EBITDA.
Current Assets are classified into the following categories:

Inventories
Trade and Other Current Receivables (concerning the commercial area)
Other Current Assets (a sum of Current Tax Assets, Biological Assets, Other Current Financial Assets, Other Current Non-financial Assets, Assets Held for Sale) Cash and Cash Equivalents
The application clearly isolates financial debt from trade liabilities, categorizing it into long- and short-term debt. This allows to calculate fundamental ratios as Debt to EBITDA or Debt to Equity ratio.

Reclassification of Income Statement

Reclassified Income Statement separates operating costs from non-operating ones, highlighting EBIT and EBITDA margins. This allows to evaluate essential ratios, such as EBIT to Interest Expense and Debt to EBITDA. Costs are classified into cost of sales and other specific categories, according to their destination.

FINANCIAL HIGHLIGHTS

A summary of the main financial data allows you to get an immediate feeling of the company’s health.

The application highlights how the most relevant economic data (Revenue, EBIT, EBITDA, Net Profit), changed over the years in order to assess profitability trends.

Variations of Equity and Loan Capital are investigated to evaluate the balance of the company’s capital structure.

The application automatically generates extensive comments describing the financial status of the company through the analysis of key performance indicators.

All ratios are presented in a comprehensive table giving a global perspective on the company.

INCOME STATEMENT RATIOS

Gross Profit margin
Measures the firm's capacity to generate profit through sales.

EBITDA margin
Measures overall profitability after taking into account all operating costs: variable costs and fixed costs.

Profit Before Tax margin
Measures how much revenue is converted into profits, before tax is deducted.

Net Profit margin
It is the percentage of revenue remaining after all expenses (operating, financial and tax) have been deducted from the company's total revenue.

Operating Cash-flow margin
Measures how much cash is generated from operating activities per unit of revenue.

Revenue per Employee
It is an efficiency metric showing how much revenue is collected per single employee. A higher ratio indicates higher productivity.

PROFITABILITY RATIOS

ROE – Return on Equity
Measures the overall profitability of the Equity capital invested in the company and provides a benchmark to evaluate alternative investments.

ROCE - Return on Capital Employed
Measures the profitability of the ordinary business activities and its efficiency with respect to the amount of capital employed.

EBIT margin
Reflects the company's commercial performance and measures the average profit per unit of revenue.

ROA – Return on Assets
Measures the profitability of the company, based on the company's assets.

Asset turnover
Measures the company’s capacity to generate revenue per unit of asset invested.

Retained Earnings to Total Assets ratio
It is a balance sheet account which records the total amount of profits (or losses) made by a firm over its entire life, net of the dividends paid.

LIQUIDITY ANALYSIS

Liquidity analysis reveals whether the business has sufficient resources available in order to service its debt (interest and principal repayments).

Current ratio
Indicates the company's ability to cover its short-term liabilities using short-term assets (i.e. the assets that turn into cash quickly).

Quick ratio
Measures the company's solvency with regard to short-term liabilities.

Cash ratio
It is used to examine the company's liquidity. It is more conservative than the current ratio and the quick ratio.

Days Payables and Days Receivables
Evaluate the average amount of time it takes the company to pay suppliers and to collect payment from customers.

CAPITAL STRUCTURE RATIOS

Capital structure analysis examines the relationship between internal financial resources and debt capital, assessing the viability of the company's financing strategy.

Debt to Equity ratio
Compares the financial resources provided by debtholders with those provided by the shareholders. This ratio is used to monitor the company's financial risk.

Net Debt to Equity ratio
It is defined as the borrowings of the reported entity (Total Liabilities) less cash and cash equivalents. The ratio compares the financial resources provided by debtholders with those provided by the shareholders.

Total Liabilities to Assets ratio
Shows how much of company's assets consist of liabilities.

Total Liabilities to Equity ratio
Compares the whole amount of the company's obligations to the book value of Equity

Equity to Assets ratio
Assesses the degree of financial independence, i.e. what percentage of total company's assets is financed by Equity.

Fixed Assets coverage ratio
Fixed Assets Coverage ratio measures the company's ability to cover required investments in fixed assets by means of equity and debt.

Working Capital to Assets ratio
The working capital to total assets ratio compares the net liquid assets of the firm to the total assets. Working Capital is the difference between current assets and current liabilities, so the Working Capital to Total Assets ratio determines the short-term company's solvency.

Leverage ratio
Leverage ratio indicates a company's ability to make use of its borrowed capital to purchase assets.

Equity market value to Liabilities ratio
Compares Equity to the total amount of liabilities, considering the actual market value of the company.

SOLVENCY ANALYSIS

Solvency analysis examines a firm's capability to meet long term obligations. In general, a solvency ratio compares a measure of profitability to the company's financial obligations.

Debt to EBITDA ratio
It is a solvency indicator that is commonly used by credit rating agencies to assess the probability of defaulting on issued debt.

Debt to Operating Cash-flow ratio
Differently from Debt to EBITDA ratio, it takes into account the actual cash-flow generated by operating activities and compares it to the amount of financial liabilities.

Net Debt to EBITDA ratio
It is akin to Debt on EBITDA ratio. Unlike the aforementioned ratio, it takes into account the company's immediate liquidity, as it involves net financial debt, i.e. Debt minus cash and cash equivalents.

EBIT to Interest coverage ratio
Assesses the company's ability to cover its finance charges through its operating income.

EBITDA to Interest coverage ratio
Evaluates the company's ability to cover its finance charges through its operating income, before depreciation and amortization expenses, and share of profit from associates.

Operating Cash-flow to Interest coverage ratio
Assesses the company's ability to cover its finance charges comparing interest expense to the actual cash amount generated by operating activities.

Operating Cash-flow to Short- and Long-term Debt ratios
Meeasure the company's ability to generate cash from operating actvities in order to pay back its current and non-current financial debt.

PERFORMANCE EVALUATION

A final evaluation is provided through the assessment of four areas of financial management:

Profitability

Capital Structure

Solvency

Liquidity

A specific score will be assigned to each of those areas. If the performance of a certain area is not satisfactory, the system will discuss the reasons of such a negative outcome and will recommend interventions to improve it.

Finally, the application will assign a global score, processing the results obtained in each separate area trough business intelligent algorithms.

RATING ANALYSIS

Altman's Z-Score standard model
Z-Score is a financial metric developed by Edward l. Altman to predict the probability that a firm will undergo bankruptcy within the next few years. It is calculated as a linear combination of five common business ratios, weighted by coefficients.

Taffler's model
It is an alternative model to assess the likelihood of bankruptcy, based on different parameters and weights, obtained through a specific research on UK companies.

Springate's model
It assigns a score associated to a certain risk of bankruptcy. It is USA specific.

Debt Rating
The software, through complex business intelligence algorithms, evaluates the financial debt of the company and assigns a score indicating the debt level and if it is sustainable.

How Business Intelligence Works

Complex algorithms automatically generate appropriate comments in accordance with the results of the analysis.

Based on the financial data entered, the application determines the trend of the Debt to EBITDA ratio and generates the following comment:

Final Results

Financial Statement Analysis produces:

Reclassifies Balance Sheet and Income Statement and, then calculates EBIT and EBITDA.

Analyzes performances in different areas of financial management (profitability, liquidity, capital structure, solvency). Evaluates the overall business performance. Assesses creditworthiness and assigns a global rating score. All accounting statements of reclassified financials are based on standards adopted by international financial operators, in order to provide effective communication.

The analysis includes ratios, charts, graphs and comments. These are automatically generated by the system through specific business intelligence algorithms and provide an extensive assessment of the company’s performance. The final report is completely editable and customizable.

Upon completing the analysis, all the input and output data can be downloaded: