Analytics in business refers to the practice of solving business problems using tools and techniques like statistical models, AI, historical data, and much more. In today’s time, any enterprise that wants to earn profits and run stably must make use of various business analytics in order to assess its current business position and improve its decision-making.
One such key component of business analytics is financial analytics. In this article, we will take a look into what is financial analytics, its types, and how it helps businesses make informed decisions. Continue reading to know more!
What is Financial Analytics?
Financial analytics refers to setting up custom analysis to deal with specific business questions and predicting possible future economic scenarios of an enterprise.
With financial analytics, companies can rely on actual data rather than perception to build business strategies. Hence, financial analysis forms a vital part of any business.
Types of Financial Analytics
The major financial analytics techniques used by businesses are described below:
- Client Profitability Analytics: As the name suggests, this type of analytics is used to distinguish between clients who bring profit and those who do not. This analytics makes use of the 80/20 rule to demarcate between clients. In this scenario, 20% of the clients make up 80% of the profit, and 20% of the clients make up 80% of the customer expenses.
- Predictive Analytics: This form of analytics is an integral part of the overall financial analysis of a company. With predictive analytics, individuals can make relatively accurate sales, profit and loss projections. The techniques used in predictive analytics include correlation analysis, statistical models, etc.
- Cash Flow Analytics: Cash flow analytics is an essential component of businesses trying to track the money moving in and out of their corporation. This analytics method uses real-time indicators like cash conversion cycle and working capital ratio to paint an accurate picture of money movement.
- Product Profitability Analytics: Just like client profitability analytics, product profitability analytics is used to identify the products that bring in significant profits and also help modify or get rid of products that are not performing well in the market.
- Shareholder Value Analytics: This analytics tool helps companies assess their value by measuring the returns they can provide to their shareholders. With the data derived from shareholder value analytics, companies can evaluate their options to improve their shareholder values and, thus, their own profitability.
Importance of Financial Analytics in Decision Making
Just like any other form of analytics, financial analytics plays a critical role in improving the decision-making process of any company. Continue reading to understand how:
- Tracks Financial Performance: Financial analytics helps companies constantly track their financial performance in terms of sales, cash flow, cash-on-hand, and much more. Consequently, all these data can be used to establish and modify financial strategies to get the most out of them.
- Helps With Integrated Analytics: There are several financial aspects that should be analysed together in order to implement the most appropriate business strategies. With financial analytics, companies can easily merge different financial data and make the most informed business decision with all important factors in mind.
- Increases Visibility: Financial analytics helps business owners constantly monitor and compare all sorts of financial data and records. Therefore, entrepreneurs can monitor the problems their employees face and, subsequently, make the appropriate changes to improve their company’s finances.
- Provides Multi-Channel Approach: Financial analytics is helpful in understanding the profitability of products across different sales channels and customers. Hence, business owners will find it easier to change their business strategies according to how each channel is performing and, thus, improve their net gain.
- Determines Risks: A key benefit of financial analytics is that it helps companies identify potential economic risks and aids in diverting investments in the right direction. This type of advanced risk management supports more informed decision-making and avoids sudden financial losses.
- Improves Workflow: With financial data recorded in the supply chain, the various business departments that form a part of the supply chain management can easily access the data and therefore, make more guided decisions to improve the overall workflow to optimise costs.
In conclusion, financial analytics is a key part of any business that must be cracked in order to drive up sales and improve decision-making. This is why businesses these days, both big and small, are looking for talented individuals who are adept in this field.
In this regard, Imarticus’s Financial Analysis Prodegree program, in association with KPMG, is a must for those who want to make a name in this field.
This financial analyst course includes all the essential modules to help build your financial analytics foundation. Additionally, you will also get live online training, industry certification, career support, the chance to interact with actual industry practitioners, and much more. So, sign up today!