The financial report of an entity, which includes the so-called financial statements (featuring the balance sheet, income statement, and cash flow statement), is the primary source of economic and financial information issued by the entity, though not the only one.
Making financial decisions regarding the entity necessarily requires a prior analysis of this information. In the specialist literature, this type of analysis, along with its respective tools and methodologies, is referred to under various names: balance sheet analysis, financial analysis, economic-financial analysis, ratio analysis, report analysis, financial statement analysis, among others.
This lack of uniformity in technical language can confuse newcomers seeking to immerse themselves in this field of knowledge or when looking for technical training related to it. One could debate the relevance of each of the aforementioned terms. However, we will set aside that discussion, focusing instead on the appropriate understanding of the term "Financial Analysis" (with capital letters). It has a much broader scope than mere report analysis, proposing a process aimed at estimating an entity's or company's intrinsic value and understanding how it can generate additional wealth or what threats may impact its competitive capacity. Investment decision-making and risk management are also encompassed within this term and are undoubtedly competencies expected of a Financial Analyst.
It is within this broad scope that the purpose of the Executive Master in Financial Analysis at Porto Business School should be understood. Report analysis—one of its modules—is just a small part of the topics covered, part of a broader range of subjects that must form the professional toolkit of a Financial Analyst. Mastery of how financial markets operate, risk management, portfolio management, valuation of financial assets issued by companies, the workings of stock markets, including options and futures markets, are examples of these other areas of study. These subjects, of course, rest on a foundation of knowledge that aspiring analysts should already possess, where familiarity with accounting, mathematics and quantitative methods, and economics should stand out.
Article by Carlos Alves and José António Moreira, Directors of the Postgraduate Program in Financial Analysis.
