Financial analysis of the company: evolution and panorama of traditional approaches

Abstract

The historical evolution of financial analysis shows that this is a relatively recent field whose principles and tools are contingent on the economic and financial environment of firms, and especially the interests and concerns of the dominant players in the business environment. For a long time, banks have influenced the perceptions and practices in financial analysis and diagnostic. Their determination to minimize the credit risk has led to the development of methods to measure liquidity and solvency. Recently, with the rise of the financial markets and the role of shareholders, approaches based on profitability and return evaluation, and value creation were favored. Despite their breakthrough, these modern approaches focused on the contributions of financial theory have neither deleted nor reduced the place reserved for traditional approaches based on the analysis of accounting information. The latter are multiple and widely used, hence the importance to provide an overview of their usefulness and contribution, so as to guide practitioners and researchers in their choice of analysis techniques and tools.