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Financial Analysis by Qasim Shabbir

Financial analysis involves assessing the viability, leverage, and profitability of a business using models that can be univariate (analyzing one variable) or multivariate (analyzing two or more variables). Multivariate analysis, also known as multiple discriminant analysis, uses different indicators of risk and profitability to develop a more accurate model for predicting business failures. The most well-known multivariate model is the Altman Z-score, developed by Edward Altman, which uses five financial ratios to predict the likelihood of bankruptcy within two years.

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68 views10 pages

Financial Analysis by Qasim Shabbir

Financial analysis involves assessing the viability, leverage, and profitability of a business using models that can be univariate (analyzing one variable) or multivariate (analyzing two or more variables). Multivariate analysis, also known as multiple discriminant analysis, uses different indicators of risk and profitability to develop a more accurate model for predicting business failures. The most well-known multivariate model is the Altman Z-score, developed by Edward Altman, which uses five financial ratios to predict the likelihood of bankruptcy within two years.

Uploaded by

haroonameer
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Qasim shabbir

Financial analysis is defined as an assessment of the


going concern, leverage and profitability of a
business or a joint venture. It is often referred to as an
accounting or financial statement analysis. To
perform financial analysis, many analysts use models,
and these models can be either univariate or
multivariate.


One variable analysis (Univariate Analysis)

Two (or more) variable analysis (Multivariate
Analysis)
This type of financial analyzing is sometimes known
as Multiple Discriminant Analysis. The most well-
known of this model of financial analysis was
devised by Edward I. Altman.

Multivariate financial analysis was created to try and
establish a clearer and more accurate way of
predicting business financial failure.

Multivariate financial analysis is a more complicated
way to pinpoint the profitability or financial
risks within a particular business structure.

Multivariate analysis uses different indicators of risk
and profitability, resulting in a model that showed a
companys risk of failure relative to a standard.
A Multivariate financial analysis can be difficult and costly to
run.

Some financial information may be deemed confidential and
be unavailable to analysts.

It also takes far more time to be set up and tested successfully.
Focus on data from a singular perspective.

More thorough approach.

Useful tool in diagnosing the financial health of any
business.
A mathematical formula developed in the 1960s
Professor Edward Altman
Attempts to express the chances of a public company
going bankrupt within a two-year time period.

Z = A+B+C+D+E

Z = Score
A = Working Capital/Total Assets
B = Retained Earnings/Total Assets
C = Earnings Before Interest & Tax/Total Assets
D = Market Value of Equity/Total Liabilities
E = Sales/Total Assets
Working Capital = (3098) mil
Total Assets = 50873 mil
Retained Earning = 11107 mil
EBIT = 7978 mil
Market value of Equity = 21990 mil
Total Liabilities = 39313 mil
Sales = 79088 mil

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