One can find many definitions of financial analysis. Investopedia defines financial analysis as “the process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment.” Wikipedia defines financial analysis as “the assessment of the viability, stability and profitability of a business, sub-business or project. Practitioners of financial analysis may have their own definitions. As a practitioner of financial analysis, my definition is “the process of learning about a business in order to understand what it is doing and where it is going.”
I like to emphasize the word “learning” within my definition because learning is not a perfect process. Human beings will take steps within the process that fail to acquire the necessary insight into what a business is doing and where it is going. The steps that lead to failure within the learning process are called biases. Biases are real within the financial analysis. One cannot eliminate biases but one can manage them.