Data Analysis Methods
August 7, 2019

5 Reasons Financial Analytics Is The New Weapon for CFOs

The role of finance departments within companies is rapidly evolving, along with technology. Gone are the days when finance teams were solely responsible for bookkeeping and managing transactions. Now, with the aid of financial analytics, finance professionals are well-equipped to act quickly to make business decisions and forecast the future to maintain a competitive edge in a saturated and ever-changing marketplace.

What is Financial Analytics?

Financial analytics is the process of collecting, monitoring, analysing, storing and predicting data that gives a business the necessary information to understand and predict their financial status.  Financial analytics give a company multiple views of their financial data, and therefore, can serve to help improve business processes and provide an in-depth and easy-to-read overview of economic health within an organisation.

From being able to measure a business’ profits to be able to inform business decisions and provide predictions for process improvement effects, financial analytics is a crucial aspect of any organisation that hopes and proves to be successful.

What is Financial Analytics Software?

Financial analytics software is a management tool that not only helps to adhere to internal goals but also can be useful in providing necessary reports to governing regulatory agencies that require accurate reporting.

It’s clear why a company’s current financial health is so important, but what about the future?

Financial analytics software provides the technology to leverage existing data to create models and forward-looking insights to help inform decisions today that affect tomorrow. The need for real-time financial data is always increasing as the economy and marketplaces change more rapidly. Such analytics can also help to understand better internal processes and procedures to implement time-saving and cost-effective solutions that can ease the stress on human resources.

There’s no doubt that businesses have a massive amount of data and information. The ability to harness such data for valuable insights and predictive analytics can be the deciding factor in your business’ ability to survive and thrive.

The Need for Financial Analytics

The need for financial analytics is vast. Let’s take a look at how and where financial analytics could help your organisation:

Business models:

  • Whether you’re operating in a Business to Business model, a Business to Consumer model, or a Business to Employee model, your utmost concern is keeping your customers happy. Financial analytics provides data on the health of your business and integrates customer information and patterns to analyse how and where the company could do better, removing the barriers where sales fall.

Changing role of the finance department:

  • Finance departments are evolving and transforming into critical decision-makers. From a team that once focused on bookkeeping and P&L statements, finance teams are now shifting towards management rather than accounting. Finance teams now work to adhere to the business model while translating data insights into decisions that add value to the business.

Business Processes:

  • Financial analytics can measure defined key performance indicators (KPIs) to analyse the processes and functions within an organisation to help optimise and enhance operational effectiveness.

Integrated Analysis:

  • The ability to leverage all data from a single system uses an integrated analysis approach to provide algorithms that can help evaluate customer behaviour, operational optimisation, asset valuation and more.

Role of Data Warehousing:

  • The storage or access of data in a single system makes disparate data useful to provide a holistic view of business health. Rather than having valuable data in spreadsheets and software systems that exist alone, the integrated analysis puts the pieces of the puzzle together to make proper usage of the information. Whether data is integrated manually, by using robotic process automation (RPA), application programming interface (API), enterprise integration or point-to-point integration, having information readily and easily accessible will change how you do business.

Types of Financial Analytics

Predictive sales analytics:

  • Predictive sales analytics is used to create campaigns that are designed to generate higher-quality leads. With data, software systems can analyse points and rank them by providing the first score. This means that sales and marketing teams can create more tailored communication to target the higher “bang for the buck” leads better. Time can be spent more efficiently by leveraging data to forecast future sales and also optimise profits by creating quicker sales cycles and more successful upselling opportunities.

Client profitability analytics:

  • Such analytics can provide a prediction on the profitability of each client individually or within a segment. These analytics help accounting and underwriting as they can help to reduce default risk and losses for business and lenders.

Product profitability analytics:

  • In the same way, analytics can predict the profitability of each customer; it can inform product profitability to help businesses make better decisions on their inventory. To help maximise the profit on each product, such analysis can help see which products perform the best and at which price point they will continue to do so.  

Cash flow analytics:

  • A cash flow statement is a primary way to monitor a business’ health. The software can create cash flow statements and run reports at any given time. The more often you review cash flow statements, the better idea you can have at understanding how your business is operating. If cash is running low in specific periods, you can use financial analysis to cut costs and improve product and customer profitability.

Value-driven analytics:

  • Value-driven analysis can offer insight into “what if” situations to inform better decision-making for the future. Value-driven analysis can help to see what will change and the effect of a decision before implementation.

Shareholder value analytics:

  • Shareholder value analysis assesses a business’ performance by looking at the returns it provides to its shareholders. With this long-term view of decision-making, financial analytics software uses predictive modelling and forecasting to inform immediate decisions for future value

Analytics Have Changed Business

The use of financial analytics has changed how businesses operate. The ability to leverage data from different sources, create easy-to-use dashboards and visualisation tools and predict future returns means that financial analysis gives your business a competitive edge.

With technology that helps to understand organisational performance, evaluate risks, maximise profits by customer or product, implement business process improvement, forecast market variations, manage investments and more, financial analysis tools, have helped to transform financial departments and expand the role and impact of human resources for the better.  

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