What is Financial Analysis? Financial analysis is the conversion of financial data into useful information for decision making. Therefore, virtually any use of financial statements or other financial data for some purpose is financial analysis and, essentially, is the primary focus of accounting and finance professionals. Financial analysis can be internal (e.g., decision analysis by a company using internal data to understand or improve management and operating results) or external (e.g., comprehensive analysis for such purposes as commerical lending or investment activities). The key is how to analysis available data to make correct decisions.

Is Financial Analysis History Important? Thanks to the decades of change, opportunity and disasters, financial data in most forms is relevant, reliable and regulated. Today, we are inundated with data from around the world. But markets and institutions today and the set of regulations on the books is based on a long history of factors. And this process is dynamic. To understand where the institutional markets are today and when and why they might change requires a reasonable understanding of history. The Federal Reserve was established only in 1914 as a central bank, well over a century after the first central bank was established. Why? The SEC and vast regulations of financial markets and accounting happened in the 1930s, a big switch from the free markets of earlier American history. Why? The internet is essentially unregulated. What does this mean? What are the implications for the future? To understand the present and plan for the future, requires an understanding of the past.
 
Why Study Financial Analysis History? There is relatively little focus on the history of financial analysis and the evolution of such institutions as the New York Stock Exchange or commercial and investment banking. Presumably, current analysis is comprehensive and correct and any analysis before the internet and dot.com-mania is from the Dark Ages. In my opinion, virtually the opposite is true. Professional financial analysis and appropriate decision making is based on a thorough understanding of the development of the underlying institutions, economic structure, and the historical ups and downs of stock markets and economies.

Graham & Dodd. The landmark study of financial analysis is Security Analysis by Benjamin Graham (an investment manager) and David Dodd (professor of finance at Columbia). The first edition was 1934, about the worst period in the financial history of America. Despite being in the middle of the Great Depression, their analysis and recommendations were professional and hard boiled. They distinguished investment from speculation, but considered most investments in common stock as speculative. The focus of financial analysis has changed substantially since then, but a historical foundation in financial analysis requires quite a bit of time with Graham and Dodd.