Financial analytics is a concept that provides different views on enterprise financial data. It provides information to help finance and business decision makers take strategic actions against them to improve your overall business performance. Financial analytics is a subset of BI & EPM and has an impact on every aspect of your operations. It plays a crucial role in calculating your business profit. It helps you answer every business question related to your organization while enabling you to more accurately forecast future business results.
So why is financial analytics important?
- Today’s businesses require timely information for decision-making purposes.
- Every company needs prudent financial planning and forecasting, where financial analytics plays a crucial role.
- The diverse needs of the traditional financial department, and advancements in technology, all point to the need for financial analytics.
- Financial analytics can help shape up the business’ future goals. It can help you improve the decision-making strategies for your business.
- Financial analytics can help you focus on measuring and managing your business’ tangible assets such as cash and equipment.
- Finance analytics provides an in-depth insight into the organization’s financial status and improves the cash flow, profitability, and business value.
Important financial analytics you need to know
In today’s data-driven world, analytics is critical for any business that wants to remain competitive. Financial analytics can help you understand your business’ past and present performance and make strategic decisions. Here are some of the critical financial analytics that any company, size notwithstanding, should be implementing.
1. Predictive sales analytics
Sales revenue is critical for every business. As such, accurate sales projection has essential strategic and technical implications for the organization. A predictive sales analytics involves coming up with an informed sales forecast. There are many approaches to predicting sales, such as the use of correlation analysis or use of past trends to forecast your sales. Predictive sales analytics can help you plan and manage your business’ peaks and troughs.
2. Client profitability analytics
Every business needs to differentiate between clients that make them money and clients that lose them money. Customer profitability typically falls within the 80/20 rule, where 20 percent of the clients account for 80 percent of the profits, and 20 percent of the clients account for 80 percent of customer-related expenses. Understanding of which is vital.
By understanding your customers’ profitability, you will be able to analyze every client group and gains useful insight. However, the greatest challenge to customer profitability analytics comes in when you fail to analyze the client’s contribution to the organization.
3. Product profitability analytics
For organizations to remain competitive within an industry, organizations need to know where they are making, and losing money. Product profitability analytics can help you establish the profitability of every product rather than analyzing the business as a whole. To do this, you need to assess each product individually. Product profitability analytics can also help you establish profitability insights across the product range so you can make better decisions and protect your profit and growth over time.
4. Cash flow analytics
You need a certain amount of cash to run the organization on a day-to-day basis. Cash flow is the lifeblood of your business. Understanding cash flow is crucial for gauging the health of the business. Cash flow analytics involves the use of real-time indicators like the Working Capital Ratio and Cash Conversion Cycle. You can also predict cash flow using tools like regression analysis. Besides helping with cash flow management and ensuring that you have enough money for day-to-day operations, cash flow analytics can also help you support a range of business functions.
5. Value-driven analytics
Most organizations 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 organization needs to pull to realize its strategic goals. Value driver analytics assesses these levers to ensure that they can deliver the expected outcome.
6. Shareholder value analytics
The profits and losses, and their interpretation by analysts, investors, and the media can influence your business’ performance on the stock market. Shareholder value analytics calculates the value of the company by looking at the returns it is providing 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. Shareholder value analytics is used concurrently with profit and revenue analytics. You can use tools like Economic Value Added (EVA) to measure the shareholder value analytics.
Financial analytics is a valuable tool that every organization, small and large, should use to manage and measure its progress. Done right, it can help the organization adapt to the trends that affect its operations.
Contact the experts at eCapital Advisors to find out if a Financial Analytics solution is right for your organization.