An introduction into financial analytics
Blog //01-06-2022

An introduction into financial analytics

by Amanda Grant, Chief Product Officer

New business models, surges in Cloud adoption, and the evolving of role of the CFO all point to the vital need for accurate financial analytics.

Businesses today require timely information so that leaders can make better decisions to steer the ship of their business in the right direction. Financial analytics has always played a critical role in forming accurate key decisions by business leaders.

Financial analytics focus on measuring and managing the tangible assets of an organisation, allows for a deeper insight into the financial status of businesses and provides opportunities to improve profitability, cash flow and business value in the long term. Knowing what financial analyses to conduct, what it will measure and how to tell a story using those data findings is the all-important combination to managing business uncertainty and reducing risks when making decisions.

It also gives you the opportunity to surpass and outmanoeuvre competitors who fail in this area. By capturing and monitoring data, you're able to make sophisticated, well-informed decisions; something your rivals may not possess. It's time to go beyond the limits of outdated, manual financial analysis and reap the rewards of utilising real-time access to your data in the Cloud. 

What are financial analytics used for?

Financial analytics play a key role in establishing performance management and business intelligence and helps your organisation make accurate decisions and plan for the future. This process uses large volumes of financial and related business data to identify patterns, create forecasts, and plan for a range of scenarios.

In short, it allows finance teams to gain in-depth knowledge and take action where necessary to improve business performance. Using a robust Cloud accounting software system for financial analytics allows the finance function accurately to tell a story through data to the C-Suite and board members to form a clear decision-making process across all parts of the business

Financial analytics helps a business to

  • Understand business performance
  • Forecast variations in the market which can influence the future of a business
  • Make accurate decisions faster
  • Improve business processes and profits
  • Better manage company investments
  • Understand the performance of an organisation
  • Measure and manage the value of tangible and intangible assets
  • Increase the functionalities of information systems

What can financial analytics show me?

Better understanding of financial performance

Using financial and macroeconomic data for financial analysis in the Cloud allows the C-Suite and board to gain insight into the bigger picture of business performance, manage their assets better and predict industry and market changes in the industries they compete in.

Clearer insight into financial health

Using financial analytics in the Cloud to understand financial health works to improve business profitability and financial statements through transformation initiatives via Financial Planning & Analysis (FP&A), forecasting and customer analysis.

Effective risk management

Using advanced analytics in the Cloud for risk management helps businesses identify and address risks in good time to improve processes to efficiency. A business can then use this information to focus their investments in the right areas by taking assets from areas that are dormant then repositioning them where they will have the biggest impact financially.

Product profitability analysis is another instance of this as it allows leaders to examine their revenue analytics which relate to clients, sales channels and the market segments that profit the business alongside flagging the ones that may affect future business performance. These are just a few examples of value-driven financial analytics which serve to mitigate risks, improve the bottom line and benefit other business areas in the long run.

Increase financial transparency

As people make big decisions regarding investments based on financial information, there can be no ignoring the importance of transparency in finance. Using financial analytics allows you to monitor financial and business performance to ease the decision-making process and provides employees with a business-wide understanding of profit and loss margins which in turn influence objectives and goals to increase profitability over time. It is also an opportunity for HR managers to understand challenges faced by employees as well as open up the floor to improve workplace productivity to prevent expensive turnover.

How to implement findings from financial analytics

In today’s data-driven world, financial analytics can help you understand your business’ past and present performance and influence future strategic business decisions. There are many different types of financial analytics which can be used to deliver specific business findings to the C-Suite.

Here we have compiled some of the key financial analytics that finance teams should consider implementing into their findings.

Financial statement analytics

This analysis looks at profitability, liquidity, available financial assets, debt, and what your business would be valued at by an estimator. Use annual and quarterly reported financial information to better understand the risk and profitability of your business. For example, you can look at the accounting ratios in areas that money has been spent, lost, or earned. These findings help businesses understand growth and loss over time along with what their current position is and what future potential they hold.

Horizontal analytics

Often referred to as “trend analytics”, this type of analysis looks at the amounts reported on financial statements from a year over year perspective. For example, a vertical analysis report might show that the available cash for a business was 160% in 2019 of the available cash in 2010. Having this comparison perspective is helpful for businesses who want to get a sense of the differences in financial points of one year or point in time when compared to another.

Trend percentage analytics

This form of analysis is similar to horizontal analysis as it lets businesses see the performance and financial metrics from one time period compared to another. This insight can help to identify changes happening in a business and outline the direction of future changes.

Leverage analytics

Leverage ratios are among the most used analytics for assessing a company's performance. To get a comprehensive picture of a company's capital structure, it's useful to compare a financial metric like debt to equity, the result of which is the debt/equity ratio. Debt/equity, Debt/EBITDA, EBIT/interest (interest coverage) and Dupont analysis are four of the most used ratios used in leverage analytics.

Predictive sales analytics

This involves coming up with an informed sales forecast. Having this access to an accurate sales projection holds essential strategic and technical implications for businesses. This type of analysis can help plan and manage peaks and troughs in business activity. Other analysis approaches to predicting sales include the use of correlation analysis or use of past trends to forecast your sales.

Cash flow analytics

Understanding cash flow is crucial for gauging the health of the business. It confirms a company's most lucrative revenue streams or identifies areas of deficiency, it provides timely updates of when and where money is moved within accounts, placing great emphasis on a company's ability to generate and manage their cash flow.

Cash flow analytics involves the use of real-time indicators like operating cash flow (OCF), free cash flow (FCF), free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). You can also predict cash flow using tools like regression analysis. Starting with the statement of cash flows can be helpful, as it includes each of the three main sections: operational, investing, and financing activities.

Value-driven analytics

Most organisations have a sense of where they are going to and what they are hoping to achieve. These goals can be formal and listed on a strategy map that pinpoints the business’ value drivers. These value drivers are the vital drivers that the organisation needs to pull to realise its strategic goals. Value driver analytics assesses these levers to ensure that they can deliver the expected outcome.

Client profitability analytics

Differentiating between clients who make a company money and those who don't is important in every business. Generally speaking, 20% of clients create 80% of profits, and that 20% of clients incur 80% of customer-related expenses. Analysing your customers' profitability will give you valuable business insights into every client group. However, customer profitability analytics can be challenging if you fail to correctly analyse how clients contribute to the business.

Product profitability analytics

The ability to stay competitive within an industry requires business leaders to understand where they make and lose money. Rather than analysing the business in its entirety, you can establish the profitability of each product using product profitability analytics. Additionally, this type of analysis can help you establish profitability insights across the entire product range, thereby enabling the business to protect the profit and growth over time.

Shareholder value analytics

This analysis calculates the value of your business by looking at the returns it is providing to shareholders. Businesses can use shareholder value analytics to measure the financial repercussions of a strategy and gain insight into how much value the strategy in question is delivering to shareholders. In other words, it measures the financial repercussions of a strategy and reports how much value the strategy in question is delivering to the shareholders.

Which tools to use when implementing financial analytics

Finance is the language of business. Having a clear understanding of financial standing from a business perspective is the key to financial success. Having the right financial analysis tools and knowing what type of financial analytics you want to carry out can help you understand the risk of a financial investment or a realistic standing of your business’s financial position.

Understanding the financial situation of your business is not just a key to continued profitability, it’s useful in developing a strategy around business issues like hiring and staffing, product development, supply chain management, and business partnerships. Using the right tools in your analysis helps businesses obtain more accurate information, a more thorough and clearer picture of financial positioning strengths and weaknesses and allows CFOs, finance teams and business leaders to make more educated decisions.

Having instant access to a full data set fulfils the new demands for financial information from other parts of the company.  When preparing reports more regularly and from multiple locations, it’s proving essential for a company to have a single source of truth, so all stakeholders interact with the same database and everyone is making consistent and accurate decisions.

Using Cloud accounting software as a tool for financial analytics allows you to

  • Track performance against key KPIs real time
  • Cash flow forecasts for best and worst-case scenarios so you can plan accordingly
  • View robust, versatile, customisable dashboards and reports
  • Have access to relevant information needed to make timely management decisions
  • Use configurable reports that can be emailed with automation options

Bottom line is that Cloud accounting technology has made this all possible by changing the landscape of financial stewardship. The adoption of the Cloud has helped finance teams engage more thoroughly with the financial data available before presenting the findings back to the C-Suite.

Get analytical with Advanced Financials

Many finance teams aim to become more strategic and guide business decisions based on data. However, when data is difficult to access and analyse, this can be a challenge.

To facilitate this process, we have built a powerful reporting and dashboards engine into the core of our Cloud accounting software solution, Advanced Financials, to provide finance teams the power to lead strategy based on accurate, real-time financial analytics:

Over 1,000 customisable reports      

  • Gain insight into what is important to you and your specific role, whether that be a functional lead in the business, accounts payable team lead or CFO
  • Quick and simple overview via a single screen, no more digging for information in the system or exporting to Excel
  • Drill down into the detail to gain a deeper level of financial analysis for your personalised report

Gain real-time business insight          

  • Centralised reporting ensure insights are accurate and up to date all the time
  • Get rid of version control issues with Excel exports as all data held in Advanced Financials forms a single source of the truth
  • Always have the latest data at your fingertips - not data which is already several days out of date

Increase business agility

  • Gain a complete view of business performance
  • Focus on specific areas in granular detail to analyse and understand success or areas of poor performance
  • Make decisions based on real-time data, not outdated spreadsheets

Plan and forecast ahead for the future         

  • Plan future cash flow scenarios by using our cash flow reporting tool
  • Get a clear picture of trends and patterns emerging to predict your future with more accuracy
  • Make data-driven decisions to guide strategy based on financial performance, not a gut feeling

Get in touch with one of our experts today to find out more.

Advanced Financials Blog Reporting & Analytics Financial Management Financial Services
Amanda Grant

Amanda Grant

PUBLISHED BY

Chief Product Officer

Amanda joined Advanced in 2018 and was promoted to CPO in 2019 following a successful stint as Product Strategy Director, being responsible for the correct investment decisions.

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