Financial Analytics – There is an increasing use of analytics in many organizations these days. Today’s businesses needs timely information that helps the business people to take important decisions in business. Finance plays an important role in increasing the value of your business. Finance is finding its way as an important business function and it overlaps with analytics in many areas. Financial executives are finding out new ways in the field of finance to increase the value of their organization.
What is Financial Analytics
Financial analytics is a field that gives different views of a company’s financial data. It helps to gain in depth knowledge and take action against it to improve the performance of your business. Financial analytics has its effect on all parts of your business. Financial analytics plays a very important role in calculating the profit of a business. Financial analytics helps you to answer all your business questions related to your business and also lets you to forecast the future of your business.
Why Financial Analytics is important
- Today’s businesses needs timely information that helps the business people to take important decisions in business.
- Every business should have a sound financial planning and forecasting to leverage the business.
- The emergence of new business model, the changing needs of the traditional financial department and the advancement in technology have all led to the need for financial analytics.
- Financial analytics helps in shaping up tomorrow’s business goals. You can also improve the decision making strategies of your business.
- Financial analytics focuses on measuring and managing the tangible assets of an organization such as cash, machinery and others
- It gives a deeper insight about the financial status of your business and improve the profitability, cash flow and value of your business.
- Financial analytics will help in making smart decisions to increase the business revenue and minimize the waste of the business
- Accounting, tax and other areas of finance are having data warehouse which is combined with analytics to effectively run the business and achieve the goals faster.
There are four main reasons why financial analytics is becoming more important these days. They are listed below
There are three new business models which form the basis of financial analytics
- Business to Business
- Business to Consumer
- Business to Employee
Changing role of the financial department
Most of the finance functions are automatic and requires only fewer resources to manage them. This enables the finance executives to concentrate more on the business goals rather than just focusing on processing and reconciling transactions.
Businesses are becoming more complex these days due to the advancement of technologies. Lot of questions arise in the mind of the business people. Analytics provide the answers to all these questions. Financial analytics lets the managers and executives in an organization to have access to more accurate and detailed financial information of the organization. This strengthens the relationship of the employee inside the organization.
4.8 (1,255 ratings)
Here are few questions for which financial analytics can give you an answer
- What are the risks to which the business is exposed ?
- How to enhance and extend the business processes to make them work more effectively ?
- Are the investments made in the right path ?
- How is the profit of the product across different sales channels and customers ?
- Which segment of the market is expected to bring more profit to the business in the future ?
- What are the factors that could affect the business in the future ?
These days companies use integrated financial analytics to face the competition in the financial analytics market place. Because of using such integrated financial analytics companies will be able to analyze and share the information to the sources inside and outside the organization. Organizations should use integrated financial analytics to survive in the new economy.
Role of the Data Warehouse
The data warehousing solutions mainly focus on important analytical components like data stores, data marts and reporting applications. Data warehousing in the future will require rich analytical capabilities. Smart decisions are easily made when the data and business processes are integrated across all business functions in an organization.
Uses of Financial Analytics
Financial analytics helps a business to
- Understand the performance of an organization
- Measure and manage the value of tangible and intangible assets of an organization
- Manage the investments of the company
- Forecast the variations in the market
- Increase the functionalities of information systems
- Improve the business processes and profits
Oracle Financial Analytics Software
One example of financial analytics software is Oracle. Oracle is one of the popular financial analytics software programs in the market.
Oracle Financial Analytics helps to improve the financial performance through proper information about the expenses and revenue of all the departments in the organization. It increases the cash flow through proper maintenance of receivables, payables and inventory management. It gives you timely financial reports which will help you to determine the performance of your business. It also helps you to have a future forecast and plan your budget well. Oracle Financial Analytics software will help to improve the financial health of the business.
This software has a lot of features that includes the following
- Fixed Assets Analytics – Manages and measures the assets life cycle
- Budgetary Control Analytics – It helps in preventing over spending through effective monitoring of the budget and spending effectively
- General Ledger Analytics – Manage the financial performance of the company through various factors
- Profitability Analytics – Helps in identifying what type of customers and which channels drive more profit to the company
- Payables Analytics – Manage and monitor the cash of the payables department
- Receivables Analytics – Manage collections and have a check on the cash cycles
- Proactive Intelligence – This feature can send a signal about the issue to the managers and executives of the organization which helps them to take immediate action and solve the issue
- Pre-built data models and metrics – Oracle Financial Analytics has more than 100 metrics and models
- Out-of-the-box integration with ERP systems – It helps easy integration with ERP systems at a less risk, low cost and lesser effort
- Oracle Financial Analytics for Oracle Fusion Applications – It helps you to learn about the company’s past, present and future performance and will let you take smart decisions.
- Powered by Oracle Business Intelligence Foundation – Produces high quality reports and has a good dashboard and is highly scalable
- Exalytics Ready – It goes beyond the values of traditional data analytics and gives deeper knowledge about the huge volume of data at the speed of thought
Documents used in Financial Analysis
Finance is the language of a business. The goals of a business are always defined in terms of finance and the output is also measured in financial terms. Financial analytics involves analyzing the data involved in financial statements. By this way it provides useful information to the business owners and let them take better decisions.
There are three main financial statements on which the analysis is done
Balance sheet gives a outline about the financial items and assets that a company possesses. It is helpful in understanding the current financial position of a company. Balance sheet just lists the resources of the company and it does not tell you how these resources are managed and how it can be used in the future to improve the business performance.
There are two main parts of the balance sheet – Assets and Liabilities. Assets are divided into current assets and Non-current assets. Liabilities are further divided into Current Liabilities and Long term debts.
Income statement reveals the company’s performance over a particular period of time. The main elements of the income statement are revenues earned, expenses incurred and net profit and loss. It does not reveal the current financial position of the company but it lets you know about the future possibilities. Net Income is the result obtained through Income Statement. The Income Statement will let you know how far the company’s goals are achieved.
Cash Flow Statement
Cash Flow statement is more similar to Income Statement. It keeps a record of the company’s performance. Income statement takes only cash items but Cash Flow Statement takes non-cash items such as depreciation into account. This shows the actual inflow and outflow of cash in the company. This provides a clear picture of the company’s bills to pay, debts and financial growth over a period of time.
Elements of Financial Health
The overall financial health of a company can be assessed using three main elements – liquidity, leverage and profitability. All these are internal factors that works within the company and is beyond the control of management
The term Liquidity in business means the availability of cash and other assets to pay its debts, bills and other expenses. Every business requires a particular amount of liquidity to meet out their expenses and bills. Low level of liquidity in companies means that the business in need of extra capital and the performance is poor.
The liquidity level of the company differs from period to period because of certain factors like sales, economy and seasons. At the same time the cash flow inside the company will not be the same throughout the year. But whatever the situation is, the company need to pay for their employees and creditors. This makes a change in their liquidity level.
Leverage refers to the amount of finance which a company has borrowed from outside to run its operations as against its investment. Leverage is an important factor which is considered mainly by bankers and investors. A company will have a high leverage ratio when the debt of the company is high when compared to its equity. A high leverage ratio means that the company is exposed to risks but on the other hand higher exposure to risk also increases the returns for the business.
Profitability refers to the return that the business earns from the amount invested in the business. Many people are starting their own business these days to earn profits as the investment made in any other means will give less returns when compared to the business. There are many factors that affects the profitability of the business like price, market trends, assets, debts, expenses and many others.
There are also few ratios which will help in the overall financial analysis. Financial ratios are easy to calculate and simple to use. These ratios will tell where there need to be an improvement in the business. Financial ratios are calculated by dividing one number by another and is usually expressed in terms of percentage. These financial ratios are used to compare any financial statistics in a business and helps you to decide where there is need for betterment. Selecting the ratios for the business depends on certain factors like the type of business, years of business and others. The ratios are listed below
- Current Ratio – Exhibits the ability of an company to pay its near term obligations
- Quick Ratio – Explains the company’s ability to pay its current liabilities
- Liquidity Ratio – This calculates the liquidity of the company by taking everything into consideration except cash
- Debt or Equity Ratio – This indicates the ratio of the company’s investor vs supplied capital
- Return on Equity Ratio – This measures the company’s level of profitability
The conclusion is Financial Analytics is an important tool that should be used by small as well as large business owners to manage and measure the progress of the business. It will help the business to adapt to the trends affecting their operations. Financial analytics will provide more reliable and timely financial reports which is the main factor for measuring the success of a company from the perspective of bankers, investors and analysts.
Here are some articles that will help you to get more detail about the Financial Analytics so just go through the link
- Important Step In Wealth Management In India – Gained Huge Popularity
- Debt And Equity Which Is The Best?
- IRDA In Insurance Sector
- ETFs or Index Funds
- Wealth Management
- Amazing Guide on Using Excel Table Format
- Equity Ratio Examples
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
250+ Online Courses
Investment Banking Training (with 25+ Projects)
Financial Modeling Training (with 15+ Projects)
Equity Research Training Course (with 6+ Projects)
Corporate Finance Course
Project Finance Course