12 Types of Financial Analysis You Can Find in Equitest's Business Valuation Report

Many believe that a valuation report is only helpful in understanding the value of a specific business. But the truth is that a professional valuation report, such as the report you can produce with the Equitest AI Business Valuation software, provides at least 12 different types of financial analysis, boosting your understanding of the firm's situation.

Financial analysis includes a wide range of accounting operations to perform on a financial level to evaluate the firm's performance and stability.

Therefore, performing a valuation for a firm is like performing a complete diagnosis to understand not only what the company is worth but also how stable the company is, what its future growth is expected to be or what the chances of its bankruptcy are.

The 12 types of Financial Analysis

The 12 types of financial analysis you can find in a professional business valuation report:

• Value
• Vertical Analysis
• Horizontal Analysis
• Forecasted Growth Rate Analysis
• Liquidity Analysis
• Solvency Analysis
• Profitability Analysis
• Efficiency Analysis
• Cash Flow Needs
• Rates of Return Estimation
• Benchmark Analysis
• Sensitivity Analysis

Valuation

Finding the value of a firm is, of course, the main goal in carrying out a company valuation report. A valuation can be carried out by several methods, such as cash flow discounting, ratio analysis, asset value method, models for evaluating options, or quantitative methods.

What is important is that during the performance of the valuation, and the application of the various methods, you receive 11 additional types of financial analyses as a by-product, which will be detailed later.

Vertical Analysis

Vertical analysis is a financial analysis performed on the firm's financial statements. As part of this analysis, each section in the profit and loss report is divided by sales. Then a similar analysis is performed for the firm's balance sheet when each section of the balance sheet is divided by the total assets. The goal is to find what percentage of sales or assets each section makes up.

Horizontal Analysis

Horizontal analysis is an analysis in which financial statements of the firm are taken in several accounting periods, such as financial statements for the years 2025 - 2030, and one sees how each accounting section has changed over time. Have sales increased or decreased over time, and if so - at what rate?

Forecasted Growth Rates Analysis

Analysis of future growth rates aims to estimate by what percentage the firm is expected to grow in the coming years. This question has significant consequences - beyond the numerical question - whether the firm will grow at a rate of 1%, 2%, or 3% per year. Estimating the forecasted growth rate is essential for the following issue - does the firm have the financial resources necessary for its growth? The answer to this is learned from the subsequent financial analysis - cash flow needs.

Cash Flow Needs Estimation

Estimating cash flow needs is a process in which we calculate how much money the firm needs for it to be able to grow at its projected growth rates. e.g., if we estimate that the firm is expected to grow by 5% in the coming year, the firm should make investments. The firm needs to hire additional employees, purchase inventory, rent warehouses to house the merchandise, have offices where the employees will work, etc. All of these require cash. If the fruit cannot raise the necessary capital for expansion, it will not be able to grow.

In principle, there are two ways to finance the required investments in a firm - equity and foreign capital. Their relationship affects the following two financial analyses - liquidity ratios and relative financial strength.

Liquidity analysis

Financial liquidity ratios describe the firm's ability to repay short-term obligations. That is, the firm must pay the debts in the coming year.

Solvency Analysis

Financial strength analysis is a process in which the firm's ability to repay its long-term obligations is checked. The ability to repay long-term debts is measured through an analysis of financial leverage.

Financial leverage is defined as the ratio between equity and foreign capital. It expresses the firm's risk. That is, the firm's ability to repay long-term obligations. This analysis is critical because the financial leverage shows the extent of the firm's loans. When the volume of loans is high, the firm has to pay a lot of interest. And when the firm has to pay a lot of interest, it may find it challenging to do so in times of recession and, therefore, go bankrupt. The financial leverage analysis can help understand the firm's risk in terms of its ability to repay its obligations.

Profitability analysis

Profitability analysis examines the extent to which the firm is profitable. It can help to understand two things: whether the firm's economic activity generates profit, and if so, to what extent. If the firm is not profitable, one should ask whether it is even worth continuing to operate the business.

Profitability analysis can also help to understand whether the firm will have its financial sources to finance future growth. As mentioned above, the firm needs to make various investments to grow in the future. When a firm profits, it will have money to pay multiple suppliers to purchase what is necessary for future growth.

Efficiency Analysis

Operational efficiency shows how efficiently the firm manages the business. That is - does the firm sell in the volumes it can, given its assets? Is it properly using its machinery for production, or maybe it could put more machines into the factory? Does the development department produce developments sufficiently, given its resources?

Estimating the Rate of Return

As part of the valuation, the rates of return that the shareholders are expected to earn on the investment in the firm's shares (the equity price) and the interest rate that the various debtors (banks and bondholders) will require for providing loans to the firm must be estimated.

Benchmark Analysis

A comparative analysis is an analysis in which the firm is compared to other firms in the industry. The comparison is made in terms of different multipliers, such as the profit multiplier, the equity multiplier, and the sales multiplier, or words of various financial ratios. The analysis makes it possible to understand the firm's performance compared to other companies in the industry.

Sensitivity Analysis

Sensitivity analysis is a process in which one examines how the firm's value changes when changing one parameter, such as the growth rate. The analysis makes it possible to understand how value changes if the firm succeeds more or less than the initial assessment allows.

Conclusion

Writing a comprehensive and professional company valuation report will include the company's value and much more insight, allowing one to understand a great deal about the company's financial situation and ability to meet its goals. Suppose you are interested in knowing what the value of the company is, as well as 11 additional financial insights. In that case, you are invited to estimate your company's value using Equitest.

Suppose you look for a straightforward way to evaluate your business, manage your cap table, or create a pitch deck. In that case, you can try our intuitive ai based business valuation software or our business valuation calculator, or you can contact us for free advice or schedule a demo.