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

1. Business Models
There are three new business models which form the basis of financial analytics

 Business to Business
 Business to Consumer
 Business to Employee
2. 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.

3. Business Processes
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.
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 ?

4. Integrated Analytics
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.

5. 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.

Features
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
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
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
Liquidity
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
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
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.

Financial Ratios
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

Conclusion

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.

6 Key Financial Analytics Every

Manager Should Know
In today’s data-filled world, analytics is an essential part of staying
competitive. Financial analytics help businesses understand current and past
performance, predict future performance and make smarter decisions. Let’s
look at some of the key financial analytics that any business, regardless of size,
should be using.
Predictive sales analytics

Sales revenue is the lifeblood of any business so knowing how much you can
expect to receive has important tactical and strategic implications. Predictive
sales analytics involves figuring out how successful your sales forecast is and
improving your sales predictions in the future. There are many ways to predict
sales, such as looking for trends in past data or using predictive techniques
like correlation analysis.

Predictive sales analytics is an extremely useful tool for planning and peace of
mind, helping you manage the peaks and troughs of your business. For
example, many businesses experience more and less sales at certain times of
the year. If you know that year on year you make fewer sales in July then you
can encourage staff to take holiday then and stay calm when sales drop in that
period.

Customer profitability analytics

It’s important to differentiate between the customers that make you money
and the customers that lose you money. Customer profitability usually falls
within the 80/20 rule, whereby 20% of your customers account for 80% of
your profit, and 20% of your customers account for 80% of your customer-
related costs. Knowing which is which is important.
By understanding the profitability of certain groups of customers you can also
analyse each group and extract useful insights. For example, you may discover
that your very best customers made their first purchase from a particular
advertisement in a particular magazine. That knowledge can help direct your
future marketing efforts
Product profitability analytics

In order to stay competitive, businesses need to know where money is being

made and lost. Product profitability analytics is a way of discovering
profitability by individual product, rather than looking at the business as a
whole. To do this you need to assess each product and its costs individually.
Admittedly, this can be tricky because your products may well share
production processes or cost bases. Therefore, you need to find a reliable and
fair way to apportion costs to your various products.

Product profitability analytics helps businesses uncover profitability insights

across the product range so better decisions are made and profit is protected
and grown over time. For example, if you discover that one product makes
more profit than all the others then you may want to promote that product
more heavily.

Cash flow analytics

The day-to-day running of a business requires a certain amount of cash to

keep the lights on, wages paid, etc. Knowing how money is moving in and out
of your business is essential for gauging the health of your business. Cash flow
analytics involves using retrospective or real-time indicators such as the Cash
Conversion Cycle and Working Capital Ratio. You can also use tools like
regression analysis to predict future cash flow.

On top of helping you manage cash flow and making sure you have enough
cash to keep the cogs turning, cash flow analytics can also support a variety of
corporate functions. For example, analytic software can help accounts
receivable personnel to increase cash flow by prioritising which customers are
contacted by collection staff and when

Value driver analytics

Most businesses have a sense of where they are heading and what they are
trying to achieve. Often these goals are formalized on a strategy map that
identifies the value drivers in the business. These value drivers are the key
levers that the business needs to pull in order to meet its strategic objectives.
Value driver analytics is the assessment of these levers to ensure they actually
deliver the expected outcome.

Value drivers are often based on assumptions which need to be tested to check
they are correct. For example, you may use price as one of your value drivers
and assume that price influences sales and revenue, but you need to test that
hypothesis so you can establish if you are right or not.

Shareholder value analytics

The results and interpretation of the results by investors, analysts and the
media will determine how successful your business is on the stock
market. Shareholder value analytics is a calculation of the value of a company
made by looking at the returns the business provides to its shareholders. It
effectively measures the financial consequences of strategy and assesses how
much value the business’s strategy is actually delivering to the shareholders.

Shareholder value analytics should be used frequently alongside profit and

revenue analytics. To measure shareholder value analytics, you can use a
metric called Economic Value Added (EVA). This calculates the profit of a
business when the cost of equity finance has been removed.