Finance analysis lessons for ratios, benchmarks, proposals, assumptions, sensitivity, risk-return, and recommendations.
Financial analysis and planning is the front end of Finance case work. Before recommending a financing source, investment, valuation conclusion, risk response, or transaction path, identify the entity’s financial state and test whether the proposal is supported by relevant evidence.
Use this chapter to move from data to decision. The strongest Finance responses select the right analysis tool, explain its limitations, test assumptions, and state what management should do next.
flowchart LR
A["Financial data"] --> B["Analysis tool"]
B --> C["Assumptions"]
C --> D["Sensitivity"]
D --> E["Recommendation"]
| Section | Decision focus | Primary output |
|---|---|---|
| 1.1 Financial State | Ratios, benchmarks, trends, and cash-flow evidence. | A supported conclusion about liquidity, leverage, profitability, activity, or cash generation. |
| 1.2 Analysis Quality | Relevance, limitations, benchmark fit, and data reliability. | A critique of whether the analysis supports the conclusion. |
| 1.3 Proposals | Purpose, audience, assumptions, alternatives, and decision format. | A proposal structure that lets the user choose or approve an option. |
| 1.4 Sensitivity | Sensitivity, scenarios, simulation, risk-return, and strategic fit. | A recommendation that reflects downside risk and assumption uncertainty. |
Read each section as a decision-support task. Start with the decision, not the spreadsheet. Then choose the relevant ratio, trend, benchmark, cash-flow measure, proposal comparison, or scenario test. The final answer should explain what the analysis means for value, liquidity, risk, feasibility, strategy, and implementation.
| Trap | Better response |
|---|---|
| Producing a number without a recommendation. | Interpret the result and state the action it supports. |
| Ignoring assumptions and sensitivity. | Identify the assumption that would change the decision. |
| Treating qualitative factors as filler. | Tie each factor to risk, value, liquidity, feasibility, or strategy. |
| Using every available tool. | Select the tool that answers the user decision. |