Financial Analysis Skill

Complete financial analysis and modeling toolkit for investment decisions, company valuation, and risk assessment.

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Part 1: Financial Ratio Analysis

Capabilities

• Profitability: ROE, ROA, Gross Margin, Operating Margin, Net Margin
• Liquidity: Current Ratio, Quick Ratio, Cash Ratio
• Leverage: Debt-to-Equity, Interest Coverage, Debt Service Coverage
• Efficiency: Asset Turnover, Inventory Turnover, Receivables Turnover
• Valuation: P/E, P/B, P/S, EV/EBITDA, PEG
• Per-Share: EPS, Book Value per Share, Dividend per Share

Key Ratio Formulas

Ratio	Formula	Good Range
ROE	Net Income / Shareholders' Equity	>15%
ROA	Net Income / Total Assets	>5%
Current Ratio	Current Assets / Current Liabilities	1.5-3.0
Quick Ratio	(Current Assets - Inventory) / Current Liabilities	>1.0
Debt-to-Equity	Total Debt / Shareholders' Equity	<2.0
P/E	Price / EPS	Industry-dependent
EV/EBITDA	Enterprise Value / EBITDA	8-12x typical

Input Formats

• CSV/Excel with financial line items
• JSON with structured financial statements
• Text description of key figures

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Part 2: Financial Modeling

Core Capabilities

1. Discounted Cash Flow (DCF)

• Multi-scenario growth projections
• Terminal value (perpetuity growth + exit multiple)
• WACC calculation
• Enterprise and equity valuations

2. Sensitivity Analysis

• Key assumption impact testing
• Tornado charts for driver ranking
• Break-even analysis

3. Monte Carlo Simulation

• 1,000-10,000 scenario iterations
• Probability distributions for inputs
• Confidence intervals (90%, 95%)
• VaR and risk metrics

4. Scenario Planning

• Best/Base/Worst cases
• Probability-weighted expected values
• Decision tree analysis

DCF Input Requirements

• Historical financials (3-5 years)
• Revenue growth assumptions
• Operating margin projections
• CapEx forecasts
• Working capital requirements
• Terminal growth rate / exit multiple
• Discount rate (risk-free rate, beta, market premium)

Model Types Supported

1. Corporate Valuation - Mature, growth, turnaround
2. Project Finance - Infrastructure, real estate, energy
3. M&A Analysis - Acquisition valuation, synergy modeling
4. LBO Models - Leveraged buyout, IRR/MOIC analysis

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Output Formats

Ratio Analysis Output

• Calculated ratios with values
• Industry benchmark comparisons
• Trend analysis (multi-period)
• Interpretation and flags

DCF Model Output

• Financial projections
• Free cash flow calculations
• Terminal value computation
• Valuation summary
• Excel workbook

Monte Carlo Output

• Probability distribution
• Confidence intervals
• Statistical summary (mean, median, std dev)
• Risk metrics (VaR)

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Best Practices

Modeling Standards

• Consistent formatting and structure
• Clear assumption documentation
• Separation of inputs/calculations/outputs
• Error checking and validation

Valuation Principles

• Use multiple methods for triangulation
• Apply appropriate risk adjustments
• Validate against trading multiples
• Document key assumptions

Quality Checks

1. Balance sheet balancing
2. Cash flow reconciliation
3. Circular reference resolution
4. Sensitivity bound checking
5. Statistical validation

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Example Usage

Ratio Analysis:

• "Calculate key financial ratios for this company"
• "What's the P/E ratio if price is $50 and EPS is $2.50?"
• "Analyze liquidity using the balance sheet"

Modeling:

• "Build a DCF model using the attached financials"
• "Run Monte Carlo with 5,000 iterations"
• "Create sensitivity analysis for growth rate and WACC"
• "Develop three scenarios with probability weights"

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Limitations

• Models are only as good as assumptions
• Past performance ≠ future results
• Industry benchmarks are general guidelines
• Not a substitute for professional financial advice
• Professional judgment required for interpretation