What Are the Different Types of Financial Analysis Tools?

Jim B.
Jim B.
Financial analysis tools are often used on financial reports.
Financial analysis tools are often used on financial reports.

Financial analysis tools are different types of information and outside help used by investors to determine whether or not a potential investment is worthy. In most cases, these tools are used on different companies and their financial reports and balance sheets so that an investor can gauge the value of stocks. Other financial analysis tools at the hands of investors include financial ratios, which can be used to compare similar companies, and stock price statistical measurements, which can be used to spot potential trends in price movements. With most of these tools, either computer software or online financial firms can be utilized to perform this analysis and give the information to investors.

The process of choosing the proper investments can be a daunting one to people inexperienced with the stock market. Going it alone in such a situation is a scary prospect considering the fact that the money used for investments is usually crucial to the long-term financial health of potential investors. For those reasons, many investors seek a little help. Luckily, there is no shortage of financial analysis tools at their disposal.

Income reports and balance sheets provide much of the pertinent information for investors attempting to judge the financial strength of a particular company. Studying the current financial reports of a company alongside past reports can give an idea of whether a company is moving in the right direction or struggling. Financial ratios are effective financial analysis tools as well. These ratios take pieces of financial information and make an equation which can be used to highlight different aspects of a company's operations. Comparing these ratios to those of a benchmark company in the same industry is a good way to measure a company's status.

Other financial analysis tools have little to do with the financial statistics of a company but instead focus on the price movement of the stock they're offering. Many analysts feel that they can judge future price movement based on how the stock has performed in the past. Moving averages, which study the average price of a stock as it moves forward through time, can spot trends in the price of a particular stock.

While all of these financial analysis tools can be utilized by experienced investors without help, many newcomers can be confused by the terminology and processes involved. Those people may look to the help provided by an investment firm that offers its analysis services online. There are also many software programs which, once the requisite data is entered, can perform all of the necessary computations for the investor.

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    • Financial analysis tools are often used on financial reports.
      Financial analysis tools are often used on financial reports.