In-depth Understanding of Financial Analysis: Static and Dynamic Analysis
Today, businesses attach great importance to financial analysis methods to ensure their sustainability under ever-changing economic conditions and gain a competitive advantage. These analyses are used as important tools to assess the business's financial health, strengthen decision-making processes, and develop strategies for the future. The two common types of financial analysis are static analysis and dynamic analysis.
Static Analysis: A Snapshot
Static analysis is a method that examines the financial statement data of a business in detail, focusing on a specific period or date. It is performed on a single business or a specific date/period. In this analysis, the current situation of the business is tried to be understood and the following financial statements are generally used:
Balance Sheet Analysis:
The balance sheet shows the business's assets, liabilities, and equity structure. In static analysis, the financial health, liquidity, and debt structure of the business are examined through the balance sheet.
Cash Flow Statement Analysis:
The cash flow statement shows the cash inflows and outflows of the business in a given period. Static analysis focuses on the liquidity and cash management of the business.
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For example, in the static analysis, XYZ Company’s balance sheet and cash flow statement for the year 2023 can be analyzed to analyze the asset structure, liquidity position, and cash management.
Dynamic Analysis: Monitoring Change over Time
Dynamic analysis is a method that is not limited to one period but examines more than one period of the business or comparatively with other businesses. In this analysis, changes over time and forecasts for the future are also considered:
Trend Analysis:
In dynamic analysis, long-term trends in the financial performance of the business are identified. For example, trends in revenue increases or decreases are monitored.
Competitor Business Comparisons:
In dynamic analysis, a comparative analysis is made with the business’s competitors. This helps to identify competitive advantages and shortcomings.
For example, in dynamic analysis, trend analysis can be performed on the balance sheet and cash flow statement data of XYZ Company for the years 2021, 2022, and 2023. At the same time, a comparative analysis with another company can also be performed.
These two basic types of financial analysis can be used together to provide businesses with a strong financial understanding. Static analysis is used to reveal the immediate situation, while dynamic analysis is effective for monitoring the long-term performance and evolution of the business. When both types of analysis are combined, businesses can better assess their financial health and build their strategic decisions on a more reliable foundation.
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