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Financial Decisions and Analysis

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[University of Pennsylvania]



- Financial Analysis

Financial analysis is the process of evaluating businesses, projects, budgets, and other financial-related transactions to determine their performance and suitability. Typically, financial analysis is used to analyze whether an entity is sufficiently stable, solvent, liquid or profitable to warrant a monetary investment.

If performed in-house, financial analysis can help fund managers make future business decisions or review historical trends for past success. If done externally, financial analysis can help investors choose the best investment opportunities.

Fundamental analysis and technical analysis are the two main types of financial analysis. Fundamental analysis uses ratios and financial statement data to determine the intrinsic value of a security. Technical analysis assumes that a security's value is already determined by its price, but instead focuses on the trend in value over time.


- Financial Decision

Financial decisions are decisions made by managers about the company's finances. These are key decisions for a company's financial health. These decisions can be asset acquisitions, financing and raising capital, day-to-day capital and expenditure management, and more. 

Therefore, financial decisions affect a company's assets and liabilities. They can bring profits, generate income, and access funds and assets for the company. They can also be expenses, the creation of liabilities, and the outflow of funds from the company.


- Opportunity Costs

Opportunity cost represents the potential benefit that an individual, investor or business misses in choosing an alternative. Because opportunity cost is invisible by definition, it is easy to overlook. When a business or individual chooses one investment over another, understanding potential missed opportunities can help make better decisions. 

Opportunity cost is the foregone benefit from an option not chosen. To properly assess opportunity cost, the costs and benefits of each available option must be considered and weighed against other options. Considering the value of opportunity cost can guide individuals and organizations to make more profitable decisions.


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